2Q26 earnings signal enhanced cost discipline

比亚迪(002594)
    Maintain BUY. We view BYD’s 2Q26 earnings as resilient despite bottom-lineperformance missing by revenue drag and higher impairment losses. Webelieve tightening cost control, marked by stabilizing 1H26 R&D spend andslowing D&A growth, underscores long-term margin resilience anchored bysuperior scale and vertical integration.
    2Q26 GPM beat; net profit missed on revenue and impairment. BYD’s2Q26 revenue fell 3.2% YoY to RMB195bn, or 8.6% lower than our priorforecast. GPM expanded 0.1ppts QoQ to 18.9% in 2Q26, the highest since2Q25, and 0.5ppts higher than our projection. SG&A and R&D expenseswere largely in line while impairment losses were about RMB1.1bn higherthan our forecast. Net profit surged 30% YoY to RMB8.2bn, yet trailing ourprojection by 15%. Excluding impairment, net profit per vehicle was aboutRMB8,900 (RMB300 below our estimate).
    Stricter cost control unlocks earnings upside. Total R&D investment in1H26 declined 6.5% YoY, signaling cost stabilization, while the R&Dcapitalization ratio rose from 4% in 1H25 to 19% in 1H26. Totaldepreciation and amortization only rose 5% YoY in 1H26, the slowest pacesince 1H20. We expect cost reduction efforts to become increasinglypronounced in the next few years, as BYD’s production capacity, salesnetwork and R&D resources have been well established, especially inChina. We believe BYD’s greater economies of scale and verticalintegration could result in more resilient profitability than most peers, asevidenced by its robust 1H26 GPM.
    2H26 and FY27 outlook. We maintain our FY26E sales volume forecastof 4.5mn units with overseas contributing 40%. We cut FY26E revenueforecast by 1% following 2Q26 ASP miss but raise FY26E GPM by 0.2pptsand trim R&D expenses by 9%. Accordingly, we raise our FY26E net profitby 3% to RMB36.1bn. We project FY27E sales volume to rise 11% YoY to5.0mn units, aided by overseas markets. We expect stringent cost cuts toextend into FY27E and thus we revise up our FY27E net profit by 5% toRMB44.1bn.
    Valuation/Key risks. We maintain our BUY rating and H-share target priceof HK$125.00, still based on 22x our revised FY27E P/E. Our unchangedA-share target price is based on the current A/H premium of 18%. Key risksto our rating and target prices include lower sales volume or margins thanwe expect, as well as a sector de-rating.

1H26 in line; overseas momentum and domestic recovery intact

迈瑞医疗(300760)
    profit decreased3.6%YoY to RMB5.05bn,mainly due to FX losses.ExcludingFX impact,net profit grew8.7%YoY in1H26.We leave our2026E-28E revenueforecasts largely unchanged,which continue to assume a recovery in thedomestic business and sustained solid growth overseas.We lower our2026Eearnings forecast to reflect near-term FX headwinds,while keeping our2027E-28E earnings estimates broadly unchanged.
    Overseas businesses remained strong led by Europe and emergingmarkets.Overseas revenue reached RMB9.5bn(+13.7%YoY;+18.4%inUSD terms),accounting for53%of the total in1H26.Europe remained thestandout,with revenue up nearly25%YoY.Key markets including the UK,France and Italy each delivered growth of over30%YoY.Latin Americagrew nearly20%YoY,while APAC rose17%YoY in1H26,supported bystrong performance in India,Mexico and Brazil.Notably,growth was broad-based across product lines.Overseas IVD revenue increased21%YoY,with immunoassay up30%YoY.Overseas PMLS grew over10%YoY,andoverseas ultrasound delivered high-single-digit growth.We expect Europe,Latin America and APAC to drive continued double-digit overseas growth in2026E.
    Domestic recovery appears to be underway.Domestic revenue wasRMB8.3bn(-1.6%YoY),but we estimate2Q26already returned to positivegrowth(+~8.8%YoY).Emerging businesses and IVD are increasingly themain growth engines domestically.In1H26,domestic emerging businessesrose21%YoY and accounted for24%of domestic revenue;together withIVD,they represent74%of total domestic revenue.Mindray continued togain market share in core IVD categories(CLIA,chemistry,coagulation),with share rising from10%in1H25to14%in1H26.Its TLA installed basealso expanded rapidly.In1H26,Mindray secured over260new TLA ordersand completed nearly200installations,driving an upward revision to its full-year TLA order intake target.Therefore,we continue to expect domesticrevenue to resume single-digit growth in2026E,supported by IVD sharegains,continued growth in emerging businesses,and an easier comparisonbase.
    Maintain BUY.We maintain our FY26E-28E revenue forecasts largelyunchanged and derive our target price of RMB204.94based on a9-yearDCF model(WACC:9.1%,terminal growth:3.0%;both unchanged).Risks:centralized procurement-driven price cuts;domestic procurement demandweakness;overseas expansion underperformance.

Exports,customer mix to drive margin recovery

广汽集团(601238)
    Maintain BUY.GAC’s2Q26net loss widened QoQ on selling expenses andequity income,despite revenue beat.Management raised FY26E export targetby20%,which may result in margin improvement in2H26E.That,along withimproving Aion retail customer mix and continuous cost reduction efforts,coulddrive multi-year GPM recovery,in our view.
    2Q26revenue beat,brand-building expenses drag.GAC’s2Q26revenue rose16%YoY and beat our estimate by13%to RMB26.3bn.GPMimproved slightly to-2.4%(vs.-2.7%in1Q26and-4.9%in2Q25),beatingour forecast of-3.1%.Net loss in2Q26widened by almost RMB3.2bn QoQto RMB3.8bn on larger selling expenses(Aistaland’s brand building andnetwork build-out,as well as homegrown brands’overseas channelexpansion)and weaker equity income(GAC Honda’s wider net loss with30%QoQ sales volume decline).
    Margin recovery on exports and customer mix improvement.Following a132%YoY surge in1H26overseas sales volume,management raised its FY26E export target to0.3mn(from0.25mn),or~39%of our homegrown volume forecast.Overseas gross margin isguided at~8%this year,significantly outperforming domestic negativemargins.Localization efforts continue to mitigate tariff risks,with seven KDplants in operation.Meanwhile,Aion’s domestic customer mix is improving,with ride-hailing accounting for~20%in1H26(vs.~50%in FY25).Suchtrends,coupled with a15%cost-reduction target in FY26,we expect GPMto recover to-1.2%in2H26E,+0.6%in FY27E and+2.7%in FY28E.
    Aistaland rollout on track;JV outlook diverges.The first Huawei co-developed model,Aistaland GT7,launched on26Jun with298saleschannels(40%Huawei-authorized)in operation,following by the2ndmodel GX7in Sep.GAC Toyota remains resilient,with a denser2027-28NEV pipeline supporting our stable RMB2.1-2.2bn annual equity incomecontribution during FY26-28E.Upcoming models at GAC Honda willincorporate HarmonyOS cockpits and Momenta ADAS solutions.Weproject GAC Honda’s net loss to narrow in FY27-28E.
    Earnings/Valuation.We now project GAC’s FY26-28E net loss to beRMB9.9bn/6.5bn/4.2bn,respectively.We maintain BUY and cut H-sharetarget price from HK$4.20to HK$3.60,based on a SOTP valuation:HK$2.85per share for homegrown businesses at0.2x FY27E P/S(loweredfrom0.3x due to larger net loss projection);and HK$0.75per share for JVsand associates at an unchanged3.0x FY27E equity-income P/E.Our A-share target price of RMB8.60reflects a175%A/H premium.Key risksinclude lower sales volume/margins,further JV earnings erosion,higheroverseas risks than we expect,and a sector de-rating.

Overseas strength offsets domestic pressure; eyes on upcoming national VBP

南微医学(688029)
    In 1H26, Micro-Tech reported revenue of RMB1,728mn, up 10.4% YoY. Attributablenet profit decreased 16.5% YoY to RMB303mn mainly due to RMB83mn of FXlosses. Excluding FX losses and related tax effects, adjusted attributable net profitrose 16.4% YoY. Given the upcoming 7th national VBP, we cut our 2026E/27Eearnings estimates by 12%/7%, respectively. However, with overseas revenueaccounting for over 60% of total sales, we believe strong overseas growth shouldhelp offset near-term domestic headwinds and support resilient revenue growththrough 2026-27E. Notably, following the 7th National VBP, most of the Company'smajor products will have completed nationwide VBP, which we believe shouldlargely clear domestic pricing risk over the next several years.
    Overseas business remains the key growth engine. 1H26 overseas revenueincreased 20.6% YoY to RMB1,094mn, raising its revenue contribution to 63%.Growth was broad-based across APAC, EMEA and the US, with each regiongrowing by more than 20% YoY. Direct sales coverage continued to expandthrough both organic buildout and M&A, reaching 36.7% of total revenue(+4.7ppts YoY). This helped drive overseas gross margin up 1.1ppts YoY to66.2%. In the US, hospital accounts continue to ramp and represented about40% of total US revenue in 1H26. With the acquisition of three product linesfrom CONMED, we expect better access to hospital and GPO channels in theUS, which may drive rapid US growth and improved profitability.
    Domestic business faces near-term VBP-related pressures. Domesticrevenue fell 3.6% YoY to RMB634mn in 1H26. Within this, we estimate domestictumor intervention revenue decreased ~40% YoY due to delays in VBPimplementation for tumor ablation consumables. GI revenue grew a modest2.3% YoY to RMB556mn, reflecting proactive channel destocking after theadvance VBP notice in June. We expect the national VBP to be implemented inearly 2027E, suggesting domestic growth pressure could persist through 2H26Eand into 2027E.
    Eyes on tender outcomes of the 7th National VBP in Sep 10, 2026. The 7thNational VBP, officially announced on Aug 26, covers 23 GI interventioncategories. Micro-Tech obtained demand volume in 21 categories, ranking No.1in twelve and No.2 in five. Dominant volume shares in hemostasis clips (49%)and cholangioscopes (62%) highlighted its strong market leadership. In ourview, while domestic revenue and margin will come under short-term pressure,past VBP cycles suggest leading players typically gain market share. And weexpect the innovative products such as cholangioscopes, and ERCP productsthat used to be dominated by MNCs to see faster post-VBP penetration.
    Maintain BUY. We lower our 2026E-27E earnings forecasts to reflect upcomingVBP pressure. Accordingly, we lower our TP to RMB90.60 based on a 10-yearDCF model (WACC: 10.7%, terminal growth rate: 2.0%). Risks: deeper VBPprice erosion, overseas growth underperformance.

Net profit in 2Q26 +57% YoY helped by other income and expense control; Rising AIDC power contribution

潍柴动力(000338)
    Weichai’s net profit in 1H26 grew 36% YoY to RMB7.7bn, which implies netprofit of RMB4.6bn in 2Q26 (+57% YoY). The growth in 2Q26 was driven byinvestment income and sound expense control. While revenue grew only 9%YoY in 1H26, we continue to see rising contribution of power-related engines,with AIDC backup power engine sales surging 1.3x YoY. We maintain ourpositive stance on Weichai’s AIDC backup engine and SOFC. Maintain BUYwith unchanged SOTP-based TP of HK$45.1/RMB40.2 for Weichai H/A.Weichai remains a key pick in the Capital Goods sector.
    Improved mix in engine segment. Weichai’s total engine sales grew 15%YoY to 415k units in 1H26. Exports of 44k units, which grew 18% YoY,accounted for 11% of total engines sales in 1H26. Large-bore enginesgrew 31% YoY to 6.7k units, of which engines for AIDC surged 1.3x YoYto 1.4k units. Total power-related engine sales volume grew 31% YoY to65k units, which accounted for 16% of total engine sales in 1H26.
    Engine EBIT dropped 2% YoY in 1H26. Engine segment revenue grew15% YoY to RMB37.3bn. However, the segment profit decreased 2% YoYto RMB5.4bn in 1H26 (segment margin -2.5ppt YoY to 14.6%), which isslightly weaker than our expectation.
    Strong HDT segment margin despite slow volume growth. Weichaidelivered 76k units of HDTs in 1H26, up only 4% YoY. Sales in Chinadropped 2% YoY to 45k units, while exports grew 15% YoY to 31k units.The segment EBIT surged 4.6x YoY to RMB1.4bn, with segment marginsharply expanding 3.2ppt YoY to 3.9%.
    Forklifts & supply chain solution (KION Group) EBIT continued torecover. The segment EBIT in 1H26 surged 2.1x YoY to RMB3bn, helpedby a low base arising from the high expenses related to the “efficiencyprogram” in 1H25. The segment margin reached 6.6% in 1H26.

二季度业绩超预期；PCB与封装基板加速放量

深南电路(002916)
    深南电路1H26实现收入/归母净利润人民币152.96/22.51亿元，同比+46.3%/+65.6%；2Q26实现收入/归母净利润87.01/14.01亿元，同比+53.4%/+61.3%，环比+31.9%/+64.8%，单季毛利率为32.4%，三项指标均高于彭博一致预期。我们认为AI算力订单增长、产品结构升级、BT载板高稼动率、FC-BGA量产及广州工厂爬坡是主要驱动力。维持“买入”评级，将2026/27年收入预测上调10%/15%，毛利率预测上调1.8/2.5个百分点，目标价上调至人民币462元，基于37倍2027年市盈率，与可比公司均值相若。
    三项业务全面增长，封装基板贡献主要业绩弹性。1）1H26PCB收入85.52亿元，同比+36.3%，毛利率36.85%，同比+2.43个百分点；数据中心相关订单收入突破20亿元，高速交换机、光模块及AI服务器需求是主要驱动力。2）封装基板收入36.67亿元，同比+110.8%，毛利率31.35%，同比+16.20个百分点，受益于存储、PMIC订单增长及FC-BGA规模化量产。据管理层，ABF上半年收入约2亿元、全年有望超过6亿元，但仍处于亏损爬坡阶段；BT高稼动率则支撑基板盈利改善。3）电子装联收入19.76亿元，同比+33.7%，毛利率17.30%，同比+2.32个百分点，主要受数据中心项目量产及订单结构改善推动。
    扩产支撑中期增长，关注投产及折旧压力。期末在建工程32.48亿元，较年初+75.5%；上半年投资活动现金净流出46.76亿元，净流出规模约为去年同期的3倍。广州广芯累计投入47.76亿元，据管理层，公司正继续投入原约60亿元规划中的剩余约20亿元，主要扩充BT及存储载板产能，预计4Q26投产。泰国和南通四期仍在爬坡，管理层表示上半年亏损有所收窄。无锡AI项目总投资45.36亿元、建设期12个月，期末进度22.5%，尚未投产；后续贡献取决于建设投产、客户认证、订单导入、良率及稼动率提升。
    未来展望：我们预计下半年AI算力景气延续，新产能爬坡有望支撑增长，毛利率则取决于产能利用率提升能否覆盖原材料涨价及新增折旧。广州、泰国和南通项目爬坡，以及无锡项目建设，将进一步打开中期产能空间；若建设、认证及订单导入顺利，无锡AI项目有望于2027年逐步贡献增量。建议关注原材料价格传导、汇率波动及其对财务费用的影响、新产能爬坡、无锡项目进度，以及客户提前下单对订单节奏的扰动。主要风险包括成本传导滞后、汇率波动、AI资本开支不及预期、产能或认证进度低于预期，以及汽车和消费电子需求疲软。

Transition before turnaround; maintain HOLD

卓胜微(300782)
    Maxscend released1H26results.Revenue rose6.2%YoY to RMB1.81bn,while net loss widened to RMB371mn;2Q26revenue reached RMB982mn(+3.6%YoY/+18.7%QoQ),but net loss deepened to RMB226mn,both belowBloomberg consensus.GPM fell12.4ppts to16.4%,as low fab loading,depreciation,pricing pressure and module ramp costs overwhelmed miximprovement.Maxscend is simultaneously digesting legacy inventory,executing its Fab-Lite transition and pivoting toward optical interconnect.Withdemand recovery uncertain and utilization subdued,we cut FY26E/FY27Erevenue by2.1%/2.4%and GPM by11.7ppts/9.6ppts.Maintain HOLD andlower TP to RMB74.2,based on40x2027E EV/EBITDA,similar to1-SD belowthe historical mean.
    Module growth outpaced discrete,but margins lagged.In1H26,RFmodule revenue climbed22.9%YoY to RMB929mn,lifting its sales mix to51%,as L-PAMiD shipments accelerated and Wi-Fi7scaled;Wi-Fi8alsoentered small-volume shipments.In contrast,RF discrete sales fell8.3%YoY to RMB824mn amid soft handset demand and ongoing inventorydigestion.The richer module mix has yet to translate into profitability,asmodule GPM fell15.6ppts to13.1%,while discrete GPM dropped10.5pptsto17.8%.We expect volume growth,yield improvement,greatercustomization and cost-down to underpin a gradual margin recovery.
    Fab utilization remains the key earnings swing factor.Xinzhuo Fab’srevenue increased43.8%YoY to RMB694mn in1H26,while its net lossnarrowed to RMB256mn from RMB337mn in1H25.The12-inch fab hasmonthly capacity of9k wafers and has been running at roughly50–60%utilization,per mgmt.,while the6-inch filter line has reached15kwafers/month.Utilization improved from1Q26and should continue rising in2H26,although mgmt.does not expect a high FY26level.We believe adurable turnaround requires both higher loading and better unit economicsthrough yield gains,cost down,and enhanced pricing.
    Optical interconnect extends the platform’s runway but also raises theexecution bar.Maxscend is repurposing its SOI and SiGe capabilities foroptical and electrical chips used in AIDCs.First-generation SiGe electrical-chip products are under collaboration,while the SiPho process platform isstill undergoing finalization.The April placement’s RMB3.46bn net proceedsprovide sufficient funding,but customer qualification and volume productionremain distant milestones,in our view.We therefore assign no materialnear-term earnings contribution.Key upside risks include faster utilizationrecovery,stronger L-PAMiD wins or earlier optical validation;key downsiderisks include weak demand,slower qualification,intensifying competition,etc.

Platform strength drives solid growth; Maintain BUY

北方华创(002371)
    NAURA reported 1H26 revenue of RMB20.16bn (+24.9% YoY) and net profit ofRMB3.37bn (+5.1%). In 2Q26, revenue reached RMB9.84bn (+24.0% YoY, -4.7% QoQ) and net profit was RMB1.74bn (+6.6% YoY, +6.2% QoQ), both belowBloomberg consensus. Earnings growth lagged revenue due to higher R&D andselling expenses and GPM pressure. In 2Q26, GPM fell 1.4ppts QoQ to 39.3%,and mgmt. attributed the pressure to higher component iteration and upgradecosts during new-product validation and discounts to selected customers.Positively, OCF reached RMB3.77bn in 1H26, supported by stronger collections.As China’s largest platform-based semiconductor equipment provider, NAURAremains well positioned for domestic substitution, while China’s WFE sectorremains our top thematic pick. Correspondingly, we revise down our FY26/27Esales forecasts by -2.5%/-2.3% and GPM by -0.4/-1.1ppts. Maintain BUY withTP adjusted to RMB814, based on 52x 2027E P/E, 1-SD above its historicalaverage.
    Equipment growth remained broad-based, but segment marginsdeclined in 1H26. Electronic process equipment revenue, includingsemiconductor and vacuum/new-energy equipment, rose 25.9% YoY toRMB19.20bn, accounting for 95.3% of total revenue; GPM fell 2.0ppts to39.8%. The growth was driven by market share gains in etching, thin-filmdeposition, thermal processing and wet cleaning, volume shipments of ionimplantation and track systems, and batch deliveries of bonding equipment.Kingsemi’s consolidation further broadened product coverage. Componentrevenue rose 5.5% YoY to RMB915mn, while GPM declined 4.2ppts to46.2% amid stronger competition and downstream pricing pressure. NAURAis targeting higher-value applications, including AI computing, data centersand high-end industrial markets, to support its product-mix upgrade.
    Higher spending supports product penetration but delays operatingleverage. In 1H26, R&D expenses increased 28.9% YoY to RMB2.68bn, andselling expenses rose 63.5% YoY to RMB761mn due to larger sales andservice teams and Kingsemi’s consolidation. These investments supportqualification across additional process steps. New ICP etching, ion-beametching, hybrid-bonding and high-end TSV electroplating systems expandNAURA’s exposure to advanced logic, memory and advanced packaging.Meanwhile, the improvement in OCF in 1H26 strengthened cash conversion.
    Order indicators support revenue visibility while margin recoveryremains the key earnings variable. In 1H26, inventory and contractliabilities reached RMB30.5bn and RMB5.3bn, up 6.7% and 26.6% QoQ,respectively, indicating a solid production pipeline and stronger customerprepayments. Key risks include slower product validation, intensifying pricecompetition, persistent GPM pressure, weaker semiconductor capex, etc.

1H26 earnings boosted by one-off gain; organic momentum still soft

珀莱雅(603605)
    Proya's 1H26 revenue was broadly flat at RMB5,375mn (+0.2% YoY), whileattributable NP rose 46% YoY to RMB1,168mn. The increase was due to a oneoff investment gain of RMB445mn on the step-up of consolidation ofFlowerKnows (花知晓). Excluding the one-off gain, recurring NP fell 14% YoYto RMB664mn, with underlying net margin down to 13.9% from 15.4% in 1H25.Declining flagship-brand sales and a higher selling-expense ratio suggest thecore business is still bottoming. We maintain our BUY rating and keep our 30xtarget P/E multiple unchanged, yet cut our TP by 31% to HK$89.58, mainly aswe switch to recurring core EPS to remove one-off distortions and roll over ourvaluation base year to 2026E.
    Soft top line and rising online traffic costs dampen organicprofitability. In 1H26, Proya brand and TIMAGE, accounting for nearly 80%of revenue, fell 7% and 22% YoY, respectively. Group revenue held flat onlyon fast-growing but sub-scale brands (OR +71%, INSBAHA +222%). Grossmargin lifted 0.9ppts YoY to 74.3% on dual sourcing, but the selling-expenseratio rose 3.5ppts to 53.1% on a higher mix of high-spend incubation brandsand rising Douyin traffic costs. Compounded by a 1.1ppt rise in the adminexpense ratio, core net margin fell 2.0ppts YoY, and organic profitability hasyet to trough. In the near term, a flagship recovery depends on delivery ofthe Ruby Cream 4.0 relaunch and the September upgrade of the Yuanliseries, in our view.
    FlowerKnows: strategic value beyond the one-off gain. Postconsolidation, the group's online make-up share ranks behind only L'Oréaland Estée Lauder, widening its lead over domestic peers. As Proya's firstcontrolling acquisition, the deal also adds previously untested M&A and postdeal integration capability. We view M&A as the necessary route for singlebrand-reliant Chinese beauty companies to evolve into international multibrand groups — a path on which Proya is among the front-runners. Longerterm, smooth integration and portfolio build-out could support a valuation rerating toward multi-brand groups level.
    Valuation. We maintain BUY and keep our 30x target P/E multipleunchanged, but cut our TP by 31% to HK$89.58, on 1) switching of theearnings anchor from attributable to recurring core EPS, removing large nonrecurring items such as consolidation gain so that valuation tracks thecompany's organic earnings power, 2)roll-over of the valuation base year to2026E; . The stock trades at 20x 2026E P/E, with the payout ratio at around50%. Risks: slower core-brand recovery, traffic-cost hike, and weaker-thanexpected integration of acquired brands etc.

2H26 earnings inflection with attractive valuation

长城汽车(601633)
    Maintain BUY.Great Wall's2Q26results were in line with its profit alert,withASP beating our forecast on a record export mix.We see an earnings inflectionin2H26E,driven by the expected receipt of RMB3-4bn in Russian recycling-fee reimbursement by Dec2026,new model ramp-ups(such as the H10),andstabilizing selling expenses following the completion of its direct-sales networkexpansion.Exports—now accounting for more than half of total sales volumewith structurally higher margins—underpin earnings quality,while the Guiyuanplatform should revive domestic sales,in our view.
    2Q26core profit in line,revenue beat.Great Wall's2Q26net profit ofRMB1,519mn(-67%YoY,+61%QoQ)fell within its profit-alert range ofRMB1.4-1.7bn.The YoY decline was mainly due to the delayed recognitionof about RMB2.0bn of recycling-fee reimbursement in Russia(vs.RMB2.3bn recognized in2Q25);excluding this drag and adverse forex,core net profit was largely flat YoY.Revenue rose9%YoY to RMB57.0bn,4%above our forecast,driven by a record quarterly ASP of RMB181,000(+8%YoY).GPM remained resilient at18.3%(vs18.8%in2Q25).
    Prioritizing profit over volume.We cut our FY26E sales volume forecastby30,000units to1.35mn units(0.7mn units for exports and0.65mn unitsfor domestic market),as it appears to us that Great Wall continues toprioritize profitability over volume.This implies2H26sales volume of about0.77mn units,up31%HoH and2%YoY.Factoring in a higher exportcontribution offset by year-end bonus accruals,we expect2H26GPM tonarrow0.5ppts HoH to17.9%.We conservatively assume RMB3.0bn ofrecycling-fee reimbursement to be received in2H26.Accordingly,we trimour FY26E net profit by1.3%to RMB9.2bn.For FY27E,we lower salesvolume forecast from1.6mn to1.53mn units but expect rising exports andthe Guiyuan platform to support margins,bringing our FY27E net profitforecast to RMB10.9bn(-7.5%).
    Valuation/Key risks.We maintain BUY and cut our H-share target pricefrom HK$19.00to HK$14.00,now based on10x FY27E P/E(prior12x),toreflect compressed sector-wide valuation multiples.Our A-share targetprice is adjusted to RMB25.00,based on the current A/H premium of about110%.Key risks to our rating and target price include lower sales volumeand margins than we expect,as well as a further sector de-rating.

Key takeaways from post-results call

恒立液压(601100)
    We have several positive takeaways from the post-results call: (1) Loss inMexico operation reduced in 2Q26 (vs 1Q26), and we now forecast the fullyear loss to be ~RMB100mn (i.e. RMB20mn loss in 2H26E); (2) Precisionindustry (excluding ball screw) is expected to turn profitable in 2027E; (3)Demand for hydraulic components for excavators is strong, with potentiallymore order intakes for medium size cylinders for excavators from the majorUS construction machinery customer in 4Q26E; (4) Ball screws forhumanoid robots capacity is on track to reach 100k units in the near term,and is expected to reach 1mn units in 3-5 years, according to the company.We trim our 2026E earnings forecast by 3%, as we incorporated FX loss in1H26 and slightly lower margin assumptions. We maintain our positivestance on Hengli and roll over our TP to RMB132, based on 42x 2027E P/E(previously 48x 2026E P/E). Our target multiple is based on 1SD above thehistorical average to reflect both the upcycle of hydraulic business and thegrowth potential of precision industry business. Hengli remains a key pickin our universe.
    Loss in Mexico operation to be further narrowed. Mexico plant isengaged in hydraulic components business at the moment. Based onour understanding, the loss in Mexico plant narrowed to RMB20mn in2Q26 from RMB60mn in 1Q26. We understand that the annualdepreciation expense is ~RMB100mn while the annual operatingexpense is ~RMB40-50mn. Looking forward, we now assume onlyRMB20m loss in 2H26E. We forecast the full-year loss to be~RMB100mn.
    Ball screws for humanoid robots. Two production lines in China arein operation at present. Hengli expects higher output in 4Q26E, whilethe growth in 1Q27E will depend on the production schedule of themajor US humanoid robots manufacturer. Hengli’s ball screw capacityis expected to reach 100k units in the near term, and is planned toincrease to 1mn units in 3-5 years.
    Precision industry segment (excluding ball screw) to potentiallyturn profitable in 2027E. The downstream applications includesemiconductor and machine tools. For machine tools, Hengli will focusmore on high-end customers (higher margin). For semiconductor,Hengli will focus on import substitution. In terms of capacity, the annualproduction value is expected to reach RMB2bn. We expect the segmentrevenue to double and turn profitable in 2027E.

Net profit -3% YoY in 2Q26 but largely due to FX loss; strong revenue growth and EBIT

恒立液压(601100)
    Hengli’s net profit was flat YoY at RMB1.4bn in 1H26. This implies 2Q26 netprofit of RMB784mn (slightly down 3% YoY), which is in line with ourexpectation. The lack of earnings growth in 2Q26, despite strong growth ofrevenue/EBIT of 32%/22% YoY, was largely due to FX loss (RMB appreciation).We maintain our positive stance on Hengli with unchanged TP of RMB125(based on 48x 2026E P/E, 1.5SD above the historical average to reflect boththe upcycle of hydraulic business and the huge growth potential of precisionbusiness). Hengli remains a key pick in our universe. Maintain BUY.
    Key highlights in 2Q26 results: Revenue in 2Q26 grew 32% YoY toRMB3.6bn. Blended gross margin contracted 4.1ppts YoY (due to highbase) but expanded 1.3ppts QoQ to 39.9%. EBIT grew 22% YoY, as R&Dexpenses dropped 15% YoY which offset the increase in S&D expenses.Net profit was down 3% YoY at RMB784mn, as the FX loss was recognized(vs gain in 2Q25). Operating cash inflow increased 30% YoY to RMB736mn.
    Strong growth of hydraulic cylinders for excavators in 1H26 driven byindustry upcycle. Sales volume surged 32% YoY to 408k units. Weestimate that Hengli achieved a market share of 67% in 1H26, based ondomestic sales and exports from China.
    Risk factors: (1) Slowdown of demand for hydraulic components; (2)slower-than-expected new business development.

Early signs of inflection at a cyclical trough

豪威集团(603501)
    OmniVision reported 1H26 revenue of RMB14.0bn, flat YoY, while net profit fell39.9% YoY and GPM declined 1.7ppt YoY to 28.8%, as lower-margin distributionrevenue rose 41% YoY to 23% of total sales. 2Q26 revenue rose 18.7% QoQ toRMB7.61bn, exceeding guidance of RMB7.15-7.54bn and Bloombergconsensus of RMB7.4bn, although GPM remained soft at 28.3%. The 3Q26guidance of RMB7.58-8.13bn revenue and 29.4-30.7% GPM points to modestsequential growth but a clearer margin recovery. We cut 2026E/27E revenue by12%/12% and GPM by 2.1ppt/2.9ppt factoring in the results. Nevertheless, wemaintain BUY as earnings approach a cyclical trough and the mix shifts towardhigher-value applications. We lower our TP to RMB125, based on 33x 2027EP/E (previously 33x 2026E), below its two-year historical forward avg. P/E of36.7x to reflect cyclical weakness.
    Mixed segment performance, but higher-value applications remainedresilient. Consumer-electronics CIS revenue fell 31% YoY and accountedfor 31% of CIS sales, reflecting weak smartphone demand and producttransitions. Auto CIS declined 16% YoY and represented 34% of CIS sales,as inventory adjustments weighed mainly on 1Q26; however, demandrecovered visibly in 2Q26 and should benefit from rising camera content andhigher-resolution ADAS adoption. In contrast, professional-imaging CISgrew 53% YoY to 14% of CIS sales, machine-vision and robotics CISincreased over 70% YoY, medical CIS rose 15% YoY, auto analog expanded67% YoY, and display solutions grew ~13% YoY. This divergence suggestsa structural product-mix transition rather than a broad-based deterioration incompetitiveness, in our view.
    Robotics, auto analog and optical connectivity are emerging as newgrowth engines. Higher-end robotic data-collection systems can carry overUS$100 of image-sensor content, offering meaningful upside despite thebusiness’s small current base. In auto analog, OmniVision is expandingacross MCU, PMIC and SBC products, leveraging its established customerbase to evolve from a sensor vendor into a platform supplier. Opticalconnectivity could offer an even larger opportunity, with mgmt. estimatingthat its product portfolio could provide US$10 or more of semiconductorcontent per optical module, depending on product adoption. We thereforeview optical connectivity as meaningful long-term earnings optionality ratherthan a material near-term contributor.
    OmniVision is entering a gradual recovery. Volume stabilization becamevisible in 2Q26, while margin normalization should begin in 3Q26. Structuralearnings expansion is more likely in 2027, when higher-value businessesshould contribute for a full year. Maintain BUY with TP of RMB125.
    Key risks: Slower-than-expected product R&D, weak demand recovery, etc.

Net profit +77% YoY in 1H26, in line with profit alert

宏桥控股(002379)
    Hongqiao Holdings’ net profit came in at RMB15.6bn (up 77% YoY) in 1H26, inline with the profit alert announced in Jul. The results imply 1.2x YoY growth ofnet profit in 2Q26. The earnings growth in 1H26 was much higher than that ofChina Hongqiao (1378 HK, BUY), as (1) Hongqiao Holdings’ expense growthwas less than that of China Hongqiao, and (2) Hongqiao Holdings does not ownbauxite asset (weak bauxite price in 1H26). We revise up our 2026E/27E/28Eearnings forecasts by 7%/4%/4%, mainly due to lower minority interestassumptions, which offset the lower forecast on alumina profit. Our TP is slightlylowered to RMB28, based on 12x 2026E P/E, equivalent to unchanged 20%premium to our target multiple (10x) for China Hongqiao (previously RMB29, aswe trimmed our target P/E of China Hongqiao).

业绩符合预期；追光不止，下一代光互连蓄势待发

中际旭创(300308)
    中际旭创公布2026年半年报：实现营收人民币417.8亿元，同比增长182.5%；归母净利润136.5亿元，同比增长241.7%；扣非净利润130.9亿元，同比增长229.3%。分季度看，二季度营收为222.8亿元，环比增长14.3%，符合彭博一致预期；归母净利润和扣非净利润分别为79.2亿元（高于彭博一致预期）和73.7亿元，环比分别增长38.1%和29.0%。二季度收入、归母净利润、扣非净利润以及毛利率（46.4%，高于彭博一致预期45.7%）和净利率（35.5%）均创历史新高，主要受益于800G/1.6T等高附加值光模块持续放量、产品结构优化及规模效应进一步释放。我们预计公司收入将在2026/2027年分别同比增长179%/65%，同期毛利率分别达到46.6%/47.7%。维持“买入”评级，目标价上调至人民币1,400元，基于2027年预测市盈率26倍，与同业平均值基本相当。
    高速产品放量推动光模块销量、ASP及盈利能力同步提升。上半年公司光模块销量达到1,899万只，同比增长109.8%；整体ASP约2,178元/只，较去年同期提升36.5%。据披露数据测算，其中海外ASP约2,350元/只，显著高于国内约821元/只，主要反映海外800G/1.6T等高速产品占比更高。受益于产品结构优化及规模效应释放，公司光模块毛利率同比提升6.6个百分点至46.6%，随着1.6T持续爬坡及更多客户进入部署周期，盈利能力仍有提升空间。
    旺盛订单推动产能利用率提升，全球化扩产为后续交付提供保障。上半年公司光模块产能为2,215万只，产量和销量分别达到1,886万只和1,899万只，产能利用率由去年同期的81.0%提升至85.1%。截至6月末，在建工程较年初增长160.7%至37.1亿元，在建工程占固定资产的比例由20.0%升至37.8%，苏州、铜陵、成都及泰国等基地协同扩产。受应收账款、存货及预付款增加影响，上半年经营性现金流净额同比下降44.1%至18.0亿元。
    硅光与相干技术积累支撑下一代产品持续迭代。上半年1.6T硅光模块规模放量，出货量逐季提升，成为收入增长的重要驱动力。公司已形成覆盖400G、800G和1.6T的硅光产品布局，并具备相干器件、激光器及相干光组件的自主研发和量产能力。在此基础上，公司持续投入1.6T、3.2T及更高速率产品，积极布局NPO、XPO、CPO和OCS等下一代光互连方案，为中长期增长提供支撑。
    风险提示：海外AI算力资本开支不及预期；原材料供应紧张；汇率波动等。

Guidance raised on robust CDMO growth

康龙化成(300759)
    Pharmaron delivered robust1H26results,with revenue rising17.9%YoY toRMB7.6bn and non-IFRS net profit up20.3%YoY to RMB909mn.Earningsgrowth in2Q26clearly accelerated over1Q26.1H26revenue accounted for46.2%of our full-year forecast,higher than the historical range of43-45%,whilenon-IFRS net profit in1H26represented42.1%of our full-year forecast,in-linewith the historical range of40-45%.New bookings increased by more than30%YoY,led by the>50%YoY growth of CDMO business.Reflecting strong ordergrowth and improving execution,mgmt.raised full-year revenue growth guidanceto15-20%(from12-18%),coupled with faster growth of non-IFRS net profit.
    Commercial breakthroughs and margin expansion of CDMO segment.CDMO segment was the standout performer,generating1H26revenue ofRMB1.88bn(+32.8%YoY)and a gross profit margin(GPM)of25.7%(+2.6ppt YoY).Growth was fueled by robust small-molecule demand and theprogression of late-stage projects.The company secured a landmarkcommercial drug-product manufacturing agreement for Eli Lilly’s oral GLP-1product(Orforglipron),while its Ningbo facility passed its first Chinainnovative drug API PAI Inspection.Its CDMO services encompass a broadrange of modalities and high-potential targets,with several products alreadyin mid-to-late-stage clinical or commercialization stage,poised for near-termvolume ramp-up.The company is also stepping up capacity expansion,advancing small-molecule CDMO facilities in Shaoxing and Hangzhou,aswell as facilities for peptide and conjugation.Driven by robust demandcoupled with rising utilization,we expect CDMO segment to serve as the maincontributor to the Company’s overall GPM expansion going forward.
    Clinical services close to bottoming-out.Clinical services revenue grew13.8%YoY in1H26,higher than the single-digit growth seen in2024/25.2Q26segment GPM rebounded sharply by~5.0ppts QoQ to12.1%,aspricing pressure eased with signals of price hikes.New orders climbed>30%YoY,creating more evidence of demand recovery in China clinical market.Mgmt.expected continued margin improvement through2H26and into2027.
    Resilient early-stage demand with AI momentum building.Lab servicesrevenue increased13.7%YoY in1H26,with bioscience contributing over60%of segment revenue.Segment bookings rose20%+YoY,underscoringsustained early-stage R&D demand from both MNCs and biotech clients.Specifically,new modalities revenue within bioscience grew over40%YoY,aligning with the trend seen in past few years.Note that AI-driven drugdiscovery(AIDD)revenue now exceeds7%of the lab segment,with AIDDorder growth consistently outpacing the overall lab average.
    Maintain BUY.To factor in the solid demand growth and expected marginexpansion,we raise our forecast on Pharmaron’s earnings,expectingrevenue to grow by18.3%/19.6%/17.0%YoY and non-IFRS net profit toincrease by22.5%/23.2%/20.0%YoY in2026E/27E/28E,respectively.Hence,we raise our DCF-based TP from RMB39.00to RMB56.00(WACC of9.32%;terminal growth of2.0%;both unchanged).
    MORE REPORTS FROM BLOOMBERG:RESP CMBROR http://www.cmbi.com.hk
    Source:Company data,CMBIGM estimates
    Source:Bloomberg,CMBIGM estimates
    Risks:
    1)Lower-than-expectedCDMO projects in the globalin early-stage R&D;3)geopolitical uncertainties.

Robust overseas growth offset soft domestic demand

联影医疗(688271)
    United Imaging (UIH) reported 1H26 revenue of RMB7,052mn, up 17% YoY,representing 42% of our prior full-year forecast and below the ~47% historicalaverage. Overseas revenue remained strong, up 54.5% YoY while domesticrevenue grew a modest 8.5% YoY against a weak domestic market. Attributablenet profit decreased 10% YoY to RMB897mn, primarily due to FX losses. On anex-FX basis, bottom-line grew a resilient 9% YoY. Given weaker-than-expecteddomestic procurement in 1H26 and the lag between tender wins and revenuerecognition, we lower our 2026E revenue forecast by 3.7%. We also cut our2026E earnings forecast by 6.8%, reflecting the FX losses already recorded in1H26 and near-term gross margin pressure from broader domestic centralizedprocurement, although we expect FX headwinds to moderate in 2H26E. Lookingahead, we believe that the sales mix shifts to mid- to high-end products andservices should help offset centralized procurement-related margin pressure inthe long term.
    Overseas growth remained strong, with improving margins. Overseasrevenue increased 54.5% YoY to RMB1,765mn, expanding the overseasrevenue mix by 6ppts to 25% (+6ppts YoY). The robust growth was primarilydriven by APAC (+148.5% YoY) and Europe (+49.4% YoY). Servicerevenue overseas increased 64% YoY, driven by a growing installed base.Notably, favorable mix toward mid- to high-end products, together withimproving localization and operating efficiency, drove overseas grossmargin up by over 3ppts YoY. The order intake remained healthy, with mixcontinuing to shift toward higher-end products. We therefore expectoverseas revenue growth to remain strong in 2H26.
    Domestic share gains led by high-end products. Domestic revenue grew8.5% YoY to RMB5,287mn despite a weak market in 1H26, with UIH gaining1.7ppts of domestic market share YoY. Share gains were particularlynotable in high-end products such as 3.0T MR (+1.5ppts), PET/MR (+40ppts), DSA (+6ppts). In addition, we believe UIH’s increasing revenue mixof mid- and high-end products should help mitigate the margin pressurefrom centralized procurement over time. According to MDDi, the domesticmarket for medical imaging equipment declined 15.8% YoY in 1H26. Giventhe high base in 2H25 and the tender-to-revenue lag, we expect 2H26Edomestic revenue will inevitably face growth pressure. However, therecovery in procurement activities since July should support solid growth inlate-2H26E and 1H27E.
    Maintain BUY. We lower our 2026E earnings forecasts to reflect near-termFX losses and pressure from centralized procurement, but remain positiveon UIH’s long-term growth. We therefore lower TP to RMB154.95 based ona 9-year DCF model (WACC: 8.1%, terminal growth: 4.0%).

Robust Q2 earnings; AI-driven mix upgrade and ASP hikes in full swing

生益科技(600183)
    Shengyi Tech(SYT)reported strong1H26results,with revenue increasing50%YoY to RMB19.0bn and net profit surging130%YoY to RMB3.3bn.In2Q26,revenue rose54%YoY/34%QoQ to RMB10.9bn,slightly below Bloombergconsensus of RMB11.2bn.Net profit reached RMB2.13bn,up147%YoY/84%QoQ and well above consensus of RMB1.7bn.GPM expanded to32.6%from28.1%in1Q26,beating the30.4%consensus estimate.The results reinforce ourview that SYT remains a key beneficiary of the AI infrastructure upcycle.ReiterateBUY and raise our TP to RMB190,based on40x2027E P/E(previouslyRMB90based on35x2026E P/E),approximately2-SD above its1-yrhistorical mean.We forecast revenue and earnings CAGRs of47%and68%over2025-28E,implying a PEG of0.58x.We lift revenue forecasts by16%/39%and net profit forecasts by15%/31%in FY26/27E,respectively,reflecting strongAI-CCL/PCB demand and higher margin assumptions driven by ASP increasesand a richer high-end product mix.
    Core segments:Broad-based AI-driven growth across CCL&PCB.CCL&prepreg sales volumes increased14.2%/12.4%YoY,respectively in1H26,while segment revenue rose47.7%to RMB12.4bn,reflecting priceadjustments and a richer AI product mix.Subsidiary Shengyi Electronics(688183CH,NR)recorded revenue of RMB5.8bn,up53.5%YoY,and netprofit of RMB1.1bn,up109%YoY.PCB shipments increased23.1%YoY,with sales growth outpacing volume as high-layer-count and HDI productscontinued to ramp up.SYT’s strength across CCL and PCB gives it broadexposure to the AI infra.value chain.We forecast revenue growth of62%/51%in FY26/27E driven by expansion of high-end CCL products.
    Margins:ASP increases and mix upgrades drove another step-up.GPMexpanded by4.8ppt YoY to30.7%in1H26.CCL&prepreg GPM increasedby5.5ppt to29.2%,while PCB GPM rose by3.4ppt to31.2%.Strongerpricing and premium AI products drove profit growth ahead of sales.SYTrecorded RMB410mn of fair-value gains,mainly related to Novoray’s(688300CH,NR)convertible bonds,while adj.net profit neverthelessincreased111%YoY.We forecast GPM of30.6%/31.7%in FY26/27E.
    Capacity expansion supports medium-term growth.Jiangxi Phase IIreached full production in1H26,adding annual capacity of18mn sqm of CCLand34mn meters of prepreg.Thailand plant is expected to begin trialproduction in2H,while the two-phase Songshan Lake project is planned toadd48mn sqm of CCL and100mn meters of prepreg.Capex reachedRMB1.88bn in1H26.Ramp-up execution and the availability of criticalupstream materials remain key variables for earnings delivery beyond2026.
    Reiterate BUY with TP raised to RMB190,based on40x FY27E P/E,approx.2-SD above SYT’s one-year historical mean.We believe themultiple is justified by accelerating earnings,structural mix upgrades andexposure to tight AI-related CCL and PCB capacity.Key risks include slowercapacity ramp-up,raw-material costs,intensifying competition,etc.

Guidance raised after exceptional 2Q26 earnings

药明康德(603259)
    WuXi AppTec delivered exceptionally strong results in 1H26, with growthaccelerating through the year despite meaningful FX headwinds. In 1H26, totalrevenue rose 38.9% YoY to RMB28.9bn (2Q: +47.7% YoY), while revenue fromcontinuing operations grew 48.0% YoY (2Q: +55.2% YoY). Adj. net profit surged83.2% YoY to RMB11.6bn (2Q: +91.7% YoY), driving the adj. net margin to arecord 40.0%. Demand visibility continued to improve, with backlog for continuingoperations reaching RMB66.4bn as of 30 June. Mgmt. noted backlog/newbookings grew ~30%/ >40% YoY on a constant exchange basis. Mgmt.substantially raised full-year guidance by projecting 2026 revenue to reachRMB58.5-60.5bn (previously RMB51.3-53.0bn), with revenue from continuingoperations to grow by 35-39% YoY (previously 18-22% YoY). Adj. net profitmargin is expected to remain stable.
    Broad-based growth led by Chemistry on capacity efficiency gains fromlate-stage and commercial projects. Mgmt. expected for greater successfrom several customers’ products, which we believe will be the main growthdriver of the Chemistry segment in 1H26. Mgmt. emphasized that over 80%of commercial projects were converted internally from its own pipeline, andlate-stage plus commercial projects now contribute more than 50% ofrevenue, a structural mix shift that underpins both growth durability andmargin resilience. Specifically, small molecule D&M revenue jumped 72.7%YoY (2Q26: +66.9%), while TIDES revenue grew 44.3% YoY in 1H26 with74.9% YoY growth in 2Q26, lifting full-year TIDES growth guidance to ~45%(from ~40%). Mgmt. attributed quarterly TIDES volatility to deliveryscheduling and complex supply-chain planning, not underlying demand.Testing revenue rose 31.5% YoY (2Q: +35.1%), with safety assessmentservices up 42.8% YoY. Biology revenue steadily grew 11.2% YoY in 1H26(2Q26: +12.3%). Mgmt. highlighted a recovery in global early-stage R&Ddemand over recent quarters, particularly in new modalities, and viewed AIdriven drug discovery as a positive factor for its early-stage business.
    Capacity effectively running at full utilization. TIDES capacity is plannedto reach 130k L by end-2026, with three new workshops under construction -two in Taixing (online in 2027) and one in Singapore (online in 2028). Smallmolecule capacity is targeted at 5mn L by end-2026. The construction of newChangzhou site was initiated ahead of schedule to accommodate demand.The increase of capex to RMB7.5–8.5bn reflects accelerated overseasconstruction and the early Changzhou start, with further potential rise overcoming years. With accelerating backlog, richer late-stage mix and proactivecapacity additions, growth visibility remains well supported through 2H26 andbeyond.
    Maintain BUY. To factor in the strong momentum of small molecule D&M andTIDES business as well as continuous recovery of early-stage business, weraise our earnings forecasts, expecting revenue to grow by 31.4%/ 18.3%/15.1% YoY (for continuing operations: 37.5%/ 18.3%/ 15.1% YoY) and adj.net profit to grow by 59.1%/ 14.9%/ 13.6% YoY in 2026E/ 27E/ 28E,respectively. Hence, we raise our DCF-based TP from RMB143.00 toRMB170.00 (WACC: 9.39%, terminal growth: 2.00%; both unchanged).

2Q26 preview: Revenue on track but profit hurt by FX; No impact from US foreign robots ban

恒立液压(601100)
    We forecast Hengli to deliver 30% YoY revenue growth in 2Q26, driven bystrong hydraulic parts for excavators, as well as fast-growing precision revenue.On the profit side, we expect net profit to largely stay flat YoY at ~RMB800mnin 2Q26, due to (1) high base arising from high gross margin (44%) in 2Q25, (2)FX loss of ~RMB200mn, based on our estimates, as a result of the appreciationof RMB in 2Q26. On the other hand, we believe the latest ban on foreignhumanoid robots (source) sales in the US will have no impact on Hengli, giventhat the majority of Hengli’s capacity of robotic ball screws is allocated to a majorUS robot manufacturer. Our TP is unchanged at RMB125 (based on 48x 2026EP/E, 1.5SD above the historical average to reflect both the upcycle of hydraulicbusiness and the huge growth potential of precision business). Hengli remainsa key pick in our universe. Reiterate BUY.
    New ban on foreign robotic devices in the US. The US FederalCommunications Commission (FCC) released on 28 Jul that non-US madeadvanced mobile robots (including humanoids and quadrupeds) and powerinverters will be banned from selling in the US (unless exemptions aregranted), due to national security concerns. We believe Hengli, acomponent supplier tied mainly to the US humanoid robot supply chain, willsee insignificant impact from such ban.
    Risk factors: (1) Slowdown of demand for hydraulic components; (2)slower-than-expected new business development.

1H26 preview: 2Q OPAT strength persists while NBV takes a breather

中国平安(601318)
    Ping An is set to release its 1H26 results on Aug 20 (Thu) post-market. We estimateGroup OPAT at RMB83.3bn (+7.2% YoY), implying a robust 2Q26 increase of 6.8%,(vs. +7.6% in 1Q26). We expect Group NPAT to reach RMB83.8bn (+23% YoY),slightly above OPAT, reflecting positive short-term investment variances from the 2Qequity market rally (i.e. CSI300: +12% in 2Q26 vs. -4% in 1Q26/+1% in 2Q25) andrevaluation gains on the conversion value of the outstanding convertible bonds.
    Key drivers for this solid 1H26 performance include 1) L&H OPAT expected togrow ~3% YoY (CMBI est) benefiting from a more stable interest rate environmentin 2Q26 (i.e. 10YR government bond yield down 5.7bps, vs. -17bps in 2Q25), whichshould aid new business contractual service margin (NB CSM) growth. This ispartially offset by a near-term deceleration in CSM release, as in-force book mixshifts toward savings products; 2) P&C underwriting to improve on disciplinedexpense controls, and we project 1H26 COR to edge down to 95.1% (vs. 95.2% in1H25); 3) PAB to deliver quality growth in line with its year-start guidance; 4) Assetmanagement profit momentum likely sustained thanks to improving sentiment andtrading activities. We remain positive on the Group’s core earnings trajectory,and reiterate our view on L&H CSM growth inflection by FY26E. Maintain BUY,with TP at HK$86/RMB75 (unchanged) based on SOTP implying 0.83x FY26E P/EV.
    L&H core metrics back on track. We estimate 2Q26 Group OPAT atRMB42.5bn (+6.8% YoY) driven by cross-segment growth. L&H OPAT is likelyto sustain its uptrend as CSM release gradually returns to a growth trajectory.We estimate the Group’s NB CSM to rise by mid-teens YoY in 1H26 against amore stabilized interest rate backdrop, though partially offset by a lower CSMrelease rate due to in-force product mix shift toward savings-type policies. Wemaintain our view that L&H CSM growth inflection will reach by FY26E..
    2Q NBV may moderate on stringent regulations and margin recalibration.We forecast 1H26 NBV at RMB25bn (+12% YoY), implying a flattish 2Q26. Thismoderation reflects 1) stringent regulatory oversight on bancassurance expensesextending from commissions to the full fee structure (i.e. Circular 65 in Mar 2026);2) a high base effect following the actuarial assumption changes as of end-FY25,which left NBV margin in 1H25 unadjusted. Looking into 2H26E, we think the highbase impact on new policy sales could be more evident in 3Q26, while the NBVmargin drag should gradually normalize toward year-end.
    Higher OCI allocation lowers bottom-line upside from equity rally. Unlikemajor peers, Ping An captured less NPAT upside from the 2Q equity market rally(i.e. CSI 300 +12%) largely due to its higher allocation of stocks and equity fundsto FVOCI relative to FVTPL. As of FY25, Ping An’s FVOCI stock exposure wasat 43.6% (vs. listed peers at 10%-31%). We forecast net asset value atRMB1.12tn by 1H26, supported by 1) robust retained profit growth from netearnings, and 2) a modest positive impact from higher FVOCI reserves (lowerspot yields) partially offset by an increase in insurance finance reserves amid thedownward trending 20-day avg. bond yield.
    Valuation: Ping An-H is trading at 0.52x FY26E P/EV and 0.75x FY26E P/B, witha yield of 6% and an average three-year forward operating ROE >13%. We areconstructive on the prospect of Ping An’s core business improvements, including1) accelerating Life OPAT growth in FY26E driven by CSM release and balanceapproaching to inflection; 2) PAB profit enhancement; and 3) ongoing de-riskingof the AM segment. Maintain BUY, with our TP at HK$86/RMB75 (unchanged)for H/A share, which implies 0.83x FY26E P/EV and 1.2x FY26E P/B.