Citi: CR Micro’s third-quarter price increases lift gross margin, while joint-venture fab losses weigh on net profit

Why did the improvement in gross margin not translate into net profit growth?

CR Micro’s third-quarter 2026 revenue was 3.36 billion yuan, up 18% year on year and 3% quarter on quarter. It reached a new high and was in line with expectations. Driven by price increases and an improved product mix, gross margin rose 2.8 percentage points quarter on quarter to 30.6%, above the market consensus of 28.9% and Citi’s forecast of 28.2%.
However, joint-venture losses widened from 139 million yuan in the second quarter to 253 million yuan in the third quarter. Third-quarter net profit was 255 million yuan, down 35% quarter on quarter. Although it rose 36% year on year, it remained below the Bloomberg market consensus of 347 million yuan and Citi’s forecast of 373 million yuan.

Management attributed revenue and gross margin growth to the second round of price increases in July: compared with February, this round covered more products and involved larger increases. The company said industry supply was tight and input costs were rising, and that most customers understood the need for price increases.
The company’s wafer foundry capacity remains fully utilized, and packaging capacity utilization exceeds 90%. Citi expects the positive pricing trend for discrete power devices and chips to continue through 2027, but is also watching whether price increases can be sustained and how rising input costs affect consumer and automotive demand.

The Chongqing Runxi and Shenzhen Runpeng joint-venture wafer fabs are ramping up capacity, and related losses have widened. Demand for Runxi’s first phase has already exceeded its capacity of 30 thousand wafers per month. Management plans to expand capacity to 45 thousand wafers per month, with the additional capacity coming online from the second half of 2027.
Citi believes the ramp-up of the 12-inch production line in Shenzhen can provide incremental and differentiated capacity to support revenue growth. At the same time, the ramp-up of new fabs could further increase losses at associates or joint ventures.

Citi raised its 2026 revenue forecast by 5% to 12.927 billion yuan, while cutting its net profit forecast by 15% to 1.341 billion yuan: better pricing and gross margin trends were partly offset by larger joint-venture fab-related non-operating losses in its model.
The bank raised its 2027 revenue forecast by 10% to 14.87 billion yuan, but cut its net profit forecast by 3% to 1.717 billion yuan. Citi maintained its Neutral rating and raised its target price from 47 yuan to 50 yuan, switching its valuation basis from 43 times forecast 2026 earnings to 39 times forecast 2027 earnings.