Goodix Technology remained weak in 1Q26, Morgan Stanley maintains Underweight

Overview

Morgan Stanley published an earnings review on Shenzhen Goodix Technology Co Ltd (603160.SS) titled "Weakness continued in 1Q26." The report focuses on the company's 1Q26 results coming in below expectations, as well as the impact of weakness in China's smartphone market and cost pressure on subsequent earnings.

Core views

The core view is to maintain Underweight. The report acknowledges that the company has made notable progress across multiple product lines, but believes the weak outlook for the smartphone market will continue to suppress demand, while cost pressure remains. At the current share price, corresponding to about 59x 2026e EPS, Morgan Stanley considers the valuation high.

Analysis framework

The report is based on the company's disclosed first-quarter data, Morgan Stanley ModelWare forecasts, consensus data, and the relative rating framework. It compares revenue, gross profit, and net profit against internal and market expectations, and derives the target price using a residual income model.

Methodology notes

• Valuation MethodResidual income model

  base case residual income model

  The base-case scenario uses a residual income model, with key assumptions including an 8.4% cost of equity, beta of 1.1, 2% risk-free rate, 6% risk premium, 16.5% mid-term growth rate, and 4.9% terminal growth rate.

• Forecast DataMorgan Stanley ModelWare

  internal financial model

  Unless otherwise specified, the key financial metrics in the report are based on Morgan Stanley ModelWare estimates.

• Rating FrameworkMorgan Stanley Relative Rating Framework

  Underweight

  Underweight indicates that the stock's total return over the next 12-18 months is expected to be below the average total return of the analyst's industry coverage universe.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Shenzhen Goodix Technology Co Ltd (603160.SS)

  Research target

  Strengths

  The company has made progress in advancing multiple product lines, and net profit performed better than Morgan Stanley's expectations.

  Weaknesses

  1Q26 revenue was significantly below expectations, gross margin was below expectations and declined YoY, and the company still faces cost pressure and weakness in the smartphone market.

  Comparison

  The current valuation of about 59x 2026e EPS is considered high, and the target price of Rmb58.00 is below the closing price of Rmb70.74.

  Risks

  New product launches, market share expansion, progress in new fingerprint recognition applications, and changes in gross margin could all affect the investment view.

Key data

• 1Q26 RevenueRmb969mnQoQ -20%, YoY -9%, 26% below Morgan Stanley's expectations.
• 1Q26 Gross ProfitRmb396mnGross margin 40.96%, QoQ +0.6ppt, YoY -2.5ppt, 2.0ppt below expectations.
• 1Q26 Net ProfitRmb117mnNet margin 12.1%, QoQ -1.1ppt, YoY -6.3ppt, 2.8ppt above expectations.
• Rating and Target PriceUnderweight；Rmb58.00Closing price Rmb70.74, implying about 18% downside to target price.
• 2026e EPSRmb1.19Equivalent to about 59.3x 2026e P/E in the table.
• 2026e RevenueRmb5,691mnMorgan Stanley ModelWare forecast.

Impact & implications

The report has negative implications for the short-term share price: revenue missing expectations shows demand or shipment pressure remains, the YoY decline in gross margin reflects cost and product mix pressure, and although net profit above expectations provides some cushion, it is insufficient to change the Underweight view. If China's smartphone market recovers more slowly than expected, valuation pressure may continue.

Risks

• Upside risks include market share expansion and new product launches occurring faster than expected.
• Upside risks include the development of new fingerprint recognition applications progressing faster than expected.
• Downside risks include market share expansion and new product launches occurring slower than expected.
• Downside risks include gross margin being weaker than expected due to less-than-expected improvement in the cost structure.
• Downside risks include the development of new fingerprint recognition applications progressing slower than expected.

What to watch

• Whether demand in China's smartphone market improves.
• The pace of the company's new product launches and the speed of market share expansion.
• Whether fingerprint recognition application scenarios expand faster than expected.
• Whether gross margin can stabilize or rebound as the cost structure improves.
• Whether 2026e EPS and revenue forecasts need to be revised down further.