J.P. Morgan: Huafeng Test & Control third-quarter revenue rises 32% quarter on quarter, contract liabilities increase 78%

Where did third-quarter growth come from?

In the third quarter of 2026, the company reported revenue of RMB 614 million, up 52% year on year and 32% quarter on quarter; recurring net profit was RMB 262 million, up 55% year on year and 53% quarter on quarter.
Gross margin rose 1.3 percentage points year on year and 0.8 percentage points quarter on quarter. J.P. Morgan attributed the improvement to cost optimization and said improved operating leverage also drove profit growth.

Contract liabilities rose 78% quarter on quarter at the end of the third quarter, leading J.P. Morgan to conclude that the company had a healthy order backlog; inventory rose 19% quarter on quarter over the same period, which the bank believes reflects active production preparation to meet deliveries.
Production preparation also brings working capital and cash flow into focus. J.P. Morgan noted that longer turnover days could affect cash flow and increase external financing costs.

J.P. Morgan believes rising AI power-supply density increases testing complexity and duration, thereby driving demand for power-supply testing. The company is a domestic leader in the market for automated test equipment for analog, mixed-signal and power semiconductors, and has a diversified customer base.
The bank expects the 8600 series of logic test equipment to be commercialized starting in 2027 and to become a second source of advanced testing capacity amid long lead times for overseas equipment. Its model projects the 8600 series' share of revenue will rise from less than 1% in 2026 to about 25% in 2028.
Taking existing demand and new-product contributions together, J.P. Morgan forecasts compound annual growth of 61% for both the company's revenue and profit from 2026 to 2028.

As of the time covered by the report, the company's share price had fallen 35% during the month, while the A-share semiconductor index had fallen 21% over the same period; based on J.P. Morgan's forecasts, the company traded at 33 times 2027 earnings, a 15% discount to its A-share peers.
J.P. Morgan maintained its overweight rating and set a December 2027 price target of RMB 390, based on a one-year forward price-to-earnings multiple of 35 times, close to the A-share peer average. The bank believes accelerating order and revenue growth could drive a valuation rerating.
The bank also noted that an industry downturn could depress valuations; the relatively low share of revenue from spare parts and services could also affect the sustainability of long-term growth.