What expectations did the 3C business exceed?

  • Han’s Laser’s 3C revenue reached 4.3 billion yuan in the first three quarters of 2026, up 120% year on year and already exceeding the market’s previous full-year expectation of approximately 4 billion yuan. By comparison, third-quarter net profit attributable to shareholders rose 137% year on year to 889 million yuan, in line with the previous earnings guidance; the more notable surprise this time was in business revenue.
  • Management remains positive about 3C growth in 2027 despite the high base, driven by vapor-chamber cooling for mobile phones, new camera orders and additional design changes in flagship phones. The link BofA favors is the equipment demand generated by upgrades to phone design and manufacturing processes.
  • The company secured its first orders for 3D printing equipment in October, moving the new business from development into the order-taking stage. Its subsequent contribution depends on equipment share and the pace of upgrades to phone manufacturing processes, which BofA also lists as key constraints.

Why did profit fall sequentially despite a sharp year-on-year increase?

  • Third-quarter revenue was 8.061 billion yuan, up 58.1% year on year and down 2.6% sequentially. Gross margin rose to 36.5%, an increase of 1.5 percentage points year on year and 1 percentage point sequentially. But the revenue decline offset the margin improvement, leaving gross profit broadly flat with the second quarter at 2.94 billion yuan in each period.
  • Operating expenses rose 9.3% sequentially over the same period, and the expense ratio increased from 18.6% to 20.9%, causing adjusted operating profit to fall 10.3% sequentially and the operating margin to decline from 16.9% to 15.6%. Net profit attributable to shareholders also fell 4.8% sequentially, indicating that the gross margin improvement was not yet sufficient to offset the quarter’s expense growth.

What will support growth in the fourth quarter and beyond?

  • New orders in the first three quarters totaled 24.3 billion yuan, up 90% year on year, including approximately 10 billion yuan for PCB equipment and approximately 4 billion yuan for 3C. Orders on hand stood at approximately 12 billion yuan at the end of September. On that basis, BofA believes the order backlog can support fourth-quarter revenue and profit growth; those orders will subsequently need to convert into revenue.
  • The medium-term thesis for PCB is that AI development drives demand for high-end circuit boards, which in turn drives purchases of production equipment. This and upgrades to phone manufacturing processes are two distinct sources of equipment demand. BofA also lists slower-than-expected PCB growth and slower progress in ultrafast laser drilling equipment as risks.

If growth looks promising, why cut the target price from 185 yuan to 152 yuan?

  • BofA maintained its Buy rating but reduced the valuation multiple it is willing to assign to growth. Based on estimated earnings per share for 2027, it cut the target price-to-earnings ratio from 50 times to 40 times, lowering the corresponding valuation from 195 yuan to 156 yuan. The new multiple is still approximately one standard deviation above the updated ten-year historical average, retaining a premium for phone upgrades and AI PCB opportunities.
  • The cash flow valuation also fell: because of a lower free cash flow forecast, the DCF valuation declined from 175 yuan to 148 yuan, using a weighted average cost of capital of 12.4% and a perpetual growth rate of 2%. The final target price of 152 yuan is the average of the two valuations, so an improved earnings outlook and a lower target price can occur at the same time.