Morgan Stanley: CXMT’s third-quarter gross margin rose to 89.5%. Why did net profit attributable to shareholders grow only 3% quarter on quarter?

How strong was third-quarter growth, and where did it fall short?

In the third quarter of 2026, CXMT reported revenue of 118.714 billion yuan, up 19% quarter on quarter. Gross margin was 89.5%, up 1.9 percentage points sequentially and above Morgan Stanley’s previous forecast of 87.3%.
However, revenue was 6% below the bank’s estimate. Consolidated net profit of 88.983 billion yuan was 7% below expectations, while attributable net profit of 54.435 billion yuan was 24% below expectations.

Third-quarter consolidated net profit rose 19% quarter on quarter, while attributable net profit grew only 3%. Revenue and profit at ChangXin Xinqiao and ChangXin Integrated Circuit both grew more than 50% sequentially, increasing the profit shared with non-controlling shareholders.
As of the end of June 2026, CXMT held effective stakes of 15.36% and 31.72% in Xinqiao and ChangXin Integrated Circuit, respectively; both companies were included in its consolidated financial statements. The company increased its stake in ChangXin Integrated Circuit in August, and there is no timetable yet for a further increase.
Morgan Stanley believes growth in consolidated profit better reflects the company’s operating momentum. On a profit attributable to shareholders basis, however, the third-quarter attributable net margin fell 7.2 percentage points quarter on quarter to 45.9%.

Management expects revenue growth in the fourth quarter of 2026 and in 2027, with fourth-quarter gross margin remaining stable, supported by the product mix and cost controls. Customers have reserved capacity for relevant enterprise products in 2027, and the company is progressing in talks on long-term agreements with major customers.
On technology, engineering sample validation has been completed for the sixth-generation product based on the 4F² architecture, and the initial target for sending DDR5 RDIMM samples is the end of 2026.
Morgan Stanley maintained its Overweight rating and 88 yuan price target, citing tight DRAM supply, capacity expansion and technology upgrades. The target implies a 2027 forward price-to-earnings ratio of 14.3 times, above the 4.4 times for global peers; the bank attributes the premium to stronger growth prospects.
Key variables affecting this assessment include a possible earlier-than-expected decline in global DRAM prices and delays in research and development of new products, HBM or 3D DRAM. Tighter restrictions on equipment, materials or services would also affect the assessment.