Why did the revenue recovery not improve profit?

  • In the third quarter of 2026, Bestechnic reported revenue of 796 million yuan, down 20.0% year on year and up 16.7% quarter on quarter. Nomura Orient International attributed the sequential improvement to stronger downstream demand during the traditional peak season for consumer electronics.
  • Net profit for the same period was 44 million yuan, down 77.4% year on year and 45.9% quarter on quarter. Gross margin was 41.9%, up 4.9 percentage points year on year and broadly flat quarter on quarter, but insufficient to offset expense pressure.
  • Revenue for the first three quarters was 2.15 billion yuan and net profit was 216 million yuan, down 26.8% and 57.0% year on year, respectively. Revenue and gross margin met the firm’s expectations, while earnings fell short.

Which expenses weighed on earnings?

  • Nomura Orient International said increased R&D spending and other relatively fixed expenses were among the main reasons earnings fell below its expectations. The third-quarter R&D expense ratio was 28.0%, up 13.5 percentage points year on year and 4.0 percentage points quarter on quarter.
  • The finance expense ratio also rose by 3.0 percentage points year on year and 0.9 percentage points quarter on quarter. As revenue declined year on year, pressure from these expenses was further reflected in net profit.
  • Taking into account continued R&D investment and the recent rise in finance expenses, the firm cut its net profit forecasts for 2026 through 2028 by 20.4%, 2.3% and 8.2%, respectively, to 349 million yuan, 685 million yuan and 1.19 billion yuan.

What part of the smart glasses chip design does BES6100 change?

  • The company’s next-generation flagship wearable chip, BES6100, was taped out in the third quarter of 2026 and has entered customer sampling. In an investor relations communication on 8 September, the company expected the chip to enter mass production in 2027.
  • BES6100 uses a hybrid heterogeneous architecture to combine high-performance computing and ultra-low power consumption on a single chip. Nomura Orient International believes it could ease issues with inter-chip communication, system design, PCB footprint and costs in traditional dual-chip solutions.
  • The firm expects the new product to help strengthen the company’s competitiveness in the wearable SoC market, but its growth impact depends on customer adoption and the pace of mass production of BES6100, as well as the shipment ramp-up of major smart glasses customers.

How does the firm view valuation after the earnings cuts?

  • Nomura Orient International maintained its revenue forecasts for 2026 through 2028 at 2.98 billion yuan, 3.65 billion yuan and 5.07 billion yuan, respectively, corresponding to year-on-year growth of -15.4%, 22.6% and 38.8%. The firm believes consumer electronics demand remains weak, but new smart wearable and AI hardware products could contribute incremental revenue.
  • The firm maintained its neutral rating and cut its target price from 118.5 yuan to 116 yuan. The target is based on forecast 2027 earnings per share of 2.89 yuan and a target price-to-earnings ratio of 40 times, implying 3.1% upside from the 27 October 2026 closing price of 112.5 yuan.
  • The target price-to-earnings ratio of 40 times exceeds the roughly 26 times average for 2027 among the comparable companies listed by the firm, reflecting Bestechnic’s smart glasses positioning, the commercialization prospects of BES6100 and faster expected earnings growth. The firm also believed the then-current forward price-to-earnings ratio of approximately 39 times for 2027 partly reflected the medium- to long-term growth outlook.