Bernstein: Luxshare’s third-quarter revenue rises without matching profit growth as Apple assembly and exchange rates weigh, while AI server business takes over as growth driver

Why did profit miss expectations despite higher-than-expected revenue?

Third-quarter 2026 revenue was 110.5 billion yuan, up 14.6% year on year and 22% quarter on quarter, and 1.6% above market consensus. Net profit attributable to shareholders was 5.21 billion yuan, up 7% year on year but 12.6% below consensus.
Bernstein attributed the profit miss mainly to a lower-than-expected earnings contribution from the iPhone assembly joint venture and higher research and development spending. Profit contributed by associates and joint ventures fell 12% quarter on quarter to 1.1 billion yuan, mainly from the iPhone assembly business; demand was pulled forward into the first half, and the launch of the base iPhone 18 model was delayed until the first quarter of 2027, affecting the quarter’s contribution.
Third-quarter gross margin was 12.1%, in line with market consensus but down 0.7 percentage points year on year. Most of the increase in memory costs had been passed on to customers, while increases in other material costs were harder to offset; exchange-rate movements and a higher share of low-margin ODM business also weighed on gross margin.

In the first three quarters of 2026, exchange-rate movements reduced gross profit by approximately 5 billion yuan, equivalent to a 1.75 percentage-point decline in gross margin. There were also foreign-exchange losses of 2.9 billion yuan during the period, including 880 million yuan in the third quarter.
The company guided for 2026 net profit growth of 15%–20% to 19.1 billion–19.9 billion yuan, while buy-side expectations were 19.5 billion–20 billion yuan. Bernstein expects net profit growth of 18%, but earnings per share growth of 14% after accounting for share dilution from the Hong Kong listing.

The company’s 224G copper interconnect products have entered mass production. Its 1.6T optical modules resolved yield issues during the new-product introduction stage, with mass production planned for the first quarter of 2027 and volume shipments at the start of the year. The company is also involved in 15 AI cooling component projects.
Bernstein expects non-Apple business revenue to grow at a compound annual rate of more than 25% over 2026–2028, including growth of more than 50% in communications revenue, driven by demand for copper interconnects, optical modules, cooling and power-supply systems for AI servers.
The firm’s model assumes shipments of 2.5 million 1.6T optical modules in 2027, generating approximately 13 billion yuan in optical module revenue. At a net margin of 18%, it estimates net profit of about 2.5 billion yuan, or roughly 10% of group earnings. Mass production, shipment volumes and margins for optical modules are therefore key conditions for this contribution.

Bernstein expects revenue from Apple-related businesses to remain broadly flat over 2026–2028. However, as the net margin of Lizhen, Luxshare Precision’s iPhone assembly subsidiary, rises from about 1.4% to 1.7%, its net profit attributable to Luxshare could approach 5.5 billion yuan in 2028.
In non-Apple consumer electronics, the company shipped more than 10 million PCs in the first three quarters of 2026 and targets an annual increase of at least 5 million units in yearly shipments. Bernstein expects non-Apple consumer electronics revenue to grow at a compound annual rate of 20%. Automotive business Leoni accounts for about 10% of group revenue, and the firm expects its revenue to grow at a compound annual rate of approximately 10% over 2026–2028.
Bernstein expects group revenue and earnings per share to grow at compound annual rates of 15% and 33%, respectively, over 2026–2028. The firm cut its target price-to-earnings multiple from 25 times to 21 times while changing its valuation basis from 2027 earnings per share of 3.5 yuan to an average of 4.0 yuan for 2027–2028, maintaining its 86 yuan target price and outperform rating.