Third-quarter revenue recovered. Why did profit remain under pressure?

  • Lens Technology reported third-quarter 2026 revenue of 19.035 billion yuan, up 29.3% quarter on quarter but down 8.1% year on year. Net profit was 843 million yuan, up 16% quarter on quarter and down 50.4% year on year, below BofA's expectations.
  • The sequential revenue recovery did not bring a corresponding improvement in gross margin: third-quarter gross margin was 16.8%, down 1.4 percentage points quarter on quarter and 2.3 percentage points year on year. BofA attributed the earnings miss to smaller scale and exchange-rate effects.
  • Management said delayed iPhone Duo orders affected third-quarter revenue and margins; inventory rose to 9.4 billion yuan at quarter-end, up 18% quarter on quarter.

What will drive the recovery in the fourth quarter and 2027?

  • BofA expects revenue to rise significantly quarter on quarter in the fourth quarter of 2026 as iPhone Duo orders come in, driving a recovery in margins.
  • Looking ahead to 2027, BofA believes the launch of the iPhone 18 will help improve seasonal performance, while upgraded glass specifications for the front and back of phones in the second half will provide stronger momentum. The bank also expects Android demand to be weak in 2027.

How far have the new businesses progressed?

  • Management said the through-glass via (TGV) business had made positive progress, especially with a Korean customer. The first pilot production line has capacity of 300 pieces per month, which is expected to increase soon.
  • In AI servers, the company said orders from Nvidia were solid, and it plans to integrate mechanical components, liquid cooling and optical businesses through acquisitions.

Why did BofA cut its earnings forecasts while maintaining a Buy rating on the H-shares?

  • Citing exchange-rate risks, weak Android demand and rising operating expenses for new projects, BofA cut its net profit forecasts for 2026–2028 by approximately 18%–38%. Its 2026 forecast fell from 4.614 billion yuan to 2.855 billion yuan, approximately 38% below the Bloomberg consensus estimate of 4.632 billion yuan.
  • The bank still expects net profit to recover to 5.25 billion yuan in 2027 and maintained its Buy rating on the H-shares, citing an earnings recovery from the fourth quarter and long-term drivers from new businesses. It cut its H-share price target from HK$27 to HK$23, equivalent to 20 times forecast earnings for 2027.
  • BofA maintained its Underperform rating and 30 yuan price target on the A-shares, viewing their forecast 2027 price-to-earnings ratio of approximately 28 times as high compared with less than 25 times for peers. The assumed A-share price premium over the H-share price used for the target rose from 30% to 50%.