What drove the third-quarter earnings beat?

  • In the third quarter of 2026, the company reported revenue of 2.299 billion yuan, up 72.0% year on year and 15.8% quarter on quarter; net profit was 351 million yuan, up 470.2% year on year and 74.2% quarter on quarter.
  • Gross margin for the same period was 29.0%, up 9.0 percentage points year on year and 8.7 percentage points quarter on quarter. Nomura Orient International said stronger-than-expected growth in core product sales volumes and average selling prices, together with faster-than-expected product mix optimization, drove results above its original forecasts.
  • The company principally supplies electronic components and materials, including multilayer ceramic capacitors, chip resistors and inductors.

What underpins the earnings forecast upgrades?

  • Nomura Orient International expects sustained strong AI demand to further tighten industry supply and demand and support product price increases. Together with faster product mix optimization, this led it to raise its revenue forecasts for 2026–2028 by 11%, 19% and 18%, respectively, to 7.945 billion yuan, 10.183 billion yuan and 11.672 billion yuan.
  • The firm correspondingly raised its net profit forecasts for the three years by 28%, 28% and 37%, respectively, to 943 million yuan, 1.393 billion yuan and 1.571 billion yuan; it increased its overall gross margin assumptions by 2.6, 1.9 and 2.6 percentage points, respectively.
  • The capacitor business is an important part of the forecast revisions: the 2027 capacitor revenue forecast was raised from 3.991 billion yuan to 5.144 billion yuan, and the gross margin assumption from 25% to 30%. However, the firm also lowered its 2027 gross margin assumption for the resistor business from 27% to 25%.
  • The extent of price increases, downstream demand and the pace of capacity expansion will affect this projection; industry weakness, intensifying competition or higher-than-expected expense growth could also weigh on earnings.

Why was the target price cut despite higher earnings forecasts?

  • Nomura Orient International switched its valuation method from price-to-book to price-to-earnings, saying the company's earnings have recovered from their previous low base and are expected to continue growing. The firm maintained its buy rating but cut its target price from 66 yuan to 51 yuan.
  • The new target price is based on forecast 2027 earnings per share of 1.21 yuan and a price-to-earnings multiple of 42 times, above the peer average of around 18 times cited in the report. The firm believes the company's earnings recovery potential is significantly stronger than that of its peers, supporting a valuation premium; the target price implies upside of approximately 68.8% from the 3 November 2026 closing price of 30.21 yuan.