Why did revenue return to growth in the third quarter?

  • In the third quarter of 2026, Hundsun generated revenue of 1.15 billion yuan, up 8% year over year and above Goldman Sachs’ forecast of 7%; by comparison, second-quarter revenue fell 12% year over year.
  • Goldman Sachs had previously attributed the first-half revenue decline mainly to longer project implementation and acceptance cycles, including acceptance requirements related to Xinchuang, rather than weaker underlying demand. Management had said that orders had achieved double-digit growth and considered 2026–2027 the peak implementation period for Xinchuang deployments in the financial sector.
  • The third-quarter improvement indicates that project revenue recognition accelerated compared with the first half, but revenue for the first three quarters was still down 6% year over year.

How did the revenue recovery support operating profit?

  • Third-quarter gross profit rose 13% year over year to 816 million yuan, outpacing revenue growth. The gross margin increased 3.3 percentage points year over year to 71.0%, also above Goldman Sachs’ forecast of 67.7%.
  • Operating expenses for the same period rose 3% year over year to 755 million yuan, slower than revenue growth. Operating profit swung from a loss of 14 million yuan in the same period last year to a profit of 61 million yuan, and the operating margin rose to 5.3%.
  • Goldman Sachs believes this shows that operating leverage improved as revenue returned to growth. In the first half, delayed revenue recognition resulted in an operating loss despite lower operating expenses. Subsequent margin changes will depend on the pace of revenue recognition and expense growth.

What else should be considered in the sharp increase in net profit?

  • Third-quarter net profit attributable to shareholders rose 62% year over year to 315 million yuan, above Goldman Sachs’ forecast by 34%. Net profit after excluding non-recurring gains and losses was 287 million yuan, up 191% from 99 million yuan in the same period last year.
  • Non-operating income remained an important component of reported profit: it was 285 million yuan in the third quarter, up 20% year over year, broadly in line with Goldman Sachs’ forecast. For the first three quarters, non-operating income was 664 million yuan, while the company recorded an operating loss of 37 million yuan.

What do the fourth quarter and Goldman Sachs’ new forecast mean?

  • The company has historically recognized more revenue toward year-end, and revenue for the first three quarters remained below the same period last year. As a result, the pace of project delivery and acceptance in the fourth quarter will be particularly important for full-year revenue; the timing of order conversion into recognized revenue will also affect quarterly margins.
  • After the results, Goldman Sachs raised its revenue forecasts for 2026–2028 by 6%, 5% and 5%, respectively, and its operating profit forecasts by 31%, 33% and 30%, respectively. Its net profit forecasts were adjusted by different amounts: the 2026 forecast was raised by 2%, while the forecasts for 2027 and 2028 were each cut by 5%.
  • Goldman Sachs maintained its Buy rating and raised its 12-month price target from 32.36 yuan to 32.68 yuan.