Bank of America: ChangXin Technology’s third-quarter gross margin was nearly ninety percent, while net profit attributable to shareholders was below market consensus

Why did attributable profit miss consensus despite higher volumes and prices in the third quarter?

In the third quarter of 2026, the company reported revenue of 118.71 billion yuan, up 19% quarter on quarter and 613% year on year. BofA estimates that DRAM bit shipments and average selling prices rose 7.5% and 13% quarter on quarter, respectively.
Gross margin reached 89.5%, above 84.7% in the first half. Operating margin rose to 84.9% from 79.1% in the first half, also exceeding the market consensus of 80.2%.
But third-quarter net profit attributable to shareholders was 54.44 billion yuan, about 13% below the market consensus of 62.33 billion yuan. Profit attributable to non-controlling interests was 34.55 billion yuan, above the consensus of 27.88 billion yuan, and accounted for about 39% of net profit including non-controlling interests.

Management said the company is expanding into the server, edge AI and automotive DRAM markets. Its newly announced 4F² technology will first be used in DDR5 server RDIMM products. In the third quarter, price momentum for smartphone and PC DRAM was relatively weaker than for enterprise DRAM, while LPDDR6 was still ramping up.
Management expects overall DRAM supply to remain tight in 2027 and gross margin to remain stable in the fourth quarter of 2026. The company is also increasing its stakes in Hefei Fab2 and the Beijing wafer fab to optimize its ownership structure; BofA assumes non-controlling interests will account for about 35% going forward.

BofA believes it is too early to call a turning point in the memory cycle: besides prices, demand and shipments also have room to grow. Its model assumes capacity expansion will drive growth in bit shipments, which it expects to increase 34% year on year in 2027.
Growth does not require prices to keep rising. BofA expects the average selling price of DRAM, on an 8Gb-equivalent basis, to rise from 14.5 dollars for full-year 2026 to 15.9 dollars in 2027, before falling to 13.2 dollars in 2028. It also expects operating margin to fall from 82% in 2026 to 74% in 2028.
With more conservative selling price assumptions, BofA forecasts earnings per share of 3.87 yuan and 4.32 yuan for 2027 and 2028, respectively, about 20% and 28% below market consensus of 4.83 yuan and 5.98 yuan, respectively.

BofA maintains its Buy rating and sets a 65-yuan price target using a price-to-earnings multiple of 16 times average earnings per share of 4.07 yuan for 2027–2028. The bank forecasts compound annual earnings per share growth of 16% for 2027–2030.
The target multiple is above the 9–11 times fair multiple BofA assigns to global DRAM peers because ChangXin Technology is in an early expansion phase and has greater capacity growth potential. It is also below valuations of local Chinese semiconductor manufacturers to reflect cyclical fluctuations in DRAM selling prices and earnings. The bank lists an unexpected DRAM price correction or tighter restrictions on access to key equipment and materials as downside risks.