Goldman Sachs Updates Ratings on Multiple Stocks: Bullish on Foxconn, SMIC, and Kuaishou; Downgrades Bandai Namco

Overview

This report is Goldman Sachs’ cross-sector, multi-company note (The 720 series), covering leading enterprises across Japan, China, Korea, India, and the U.S. Its core focus includes recent financial results, updated management guidance, and specific events such as AI spin-offs and tariff impacts. Overall, the firm expresses optimism toward technology manufacturers (Foxconn, SMIC), select Japanese industrial firms (Daifuku, Meidensha), and leading Chinese internet companies (Kuaishou), driven primarily by AI demand tailwinds, improved capacity utilization, and effective cost control. Conversely, it adopts a more cautious stance on the gaming and entertainment segment—specifically Bandai Namco—citing weak growth prospects in its digital business. The report updates earnings forecasts and target prices for multiple companies using methodologies including sum-of-the-parts (SOTP) valuation, volume-price decomposition, and margin analysis.

Core views

Technology and semiconductor segments stand out. Foxconn benefits from expanding AI server rack volumes and a strategic shift toward higher-margin contract manufacturing; Q1 operating profit exceeded expectations by 10%, with gross margin rising to 6.2%. The firm expects Q2 AI server shipments to grow double-digit sequentially, sustaining its Buy rating and HKD 400 target price. SMIC’s Q1 revenue of USD 2.5 billion met consensus, but its gross margin of 20.1% surpassed market expectations of 19.4%, driven by a 3% sequential increase in average selling price (ASP). More importantly, its Q2 revenue guidance implies a 14–16% quarter-on-quarter increase—significantly above the consensus estimate of 7%—indicating a clear upturn in industry conditions; the Buy rating is maintained. Hua Hong Semiconductor’s Q2 gross margin guidance also exceeded expectations, although revenue slightly missed consensus; notably, its operating loss narrowed substantially, reflecting effective cost discipline. In internet and software, Kuaishou’s key narrative centers on the potential spin-off of its video-generation AI model, Kling AI. The firm believes a spin-off would alleviate capital requirements and unlock value: Kling AI’s annualized recurring revenue has already reached USD 500 million—well above the USD 300 million guidance for FY2026. However, near-term profitability will be pressured by increased AI and R&D spending; Q1 net profit is expected to decline over 30% year-on-year, and advertising revenue growth is projected to slow to high-single digits. As a result, earnings forecasts and the target price are modestly reduced to HKD 74. Japanese manufacturing shows marked divergence. Fujikura recorded lower-than-expected Q4 operating profit due to a JPY 12.8 billion tariff provision at its U.S. subsidiary; however, excluding this one-time item, results broadly met expectations. Given slow progress on hydrogen-based alternative sourcing—which may constrain future capacity utilization—the firm lowers its FY2027 operating profit forecast by 18%. In contrast, Daifuku delivered both order intake and profit above expectations in Q1 and raised its full-year guidance; Meidensha, benefiting from strong demand for power infrastructure, achieved its mid-term plan targets ahead of schedule, prompting an upgrade from Sell to Neutral. In automotive, Honda Motor’s core operating profit—excluding EV-related losses—reached JPY 1 trillion, and its new fiscal-year guidance far exceeded market expectations, underscoring the enduring profitability of its ICE/hybrid vehicle business; Suzuki Motor posted strong order intake in India, though its new fiscal-year guidance remains conservative. Across other sectors, Samsung Fire & Marine Insurance saw its target price raised to KRW 660,000, supported by improved underwriting quality and investment income growth; JSW Steel reduced net debt through asset divestitures and refocused on capacity expansion; Winway Technologies holds a favorable position in CPO (co-packaged optics) testing and is viewed as a critical bottleneck-breaker for next-generation high-current testing. The sole downgrade was Bandai Namco, where the firm cites low visibility into its new game pipeline and weakening growth drivers in its digital business—leading to a downgrade from Buy to Sell and a sharp reduction in the target price to JPY 3,300.

Analysis framework

The firm primarily employs bottom-up fundamental analysis combined with event-driven logic. For manufacturing and semiconductor companies (e.g., Foxconn, SMIC, Hua Hong), it applies a ‘volume-price decomposition’ framework, distinguishing between shipment volume changes and average selling price (ASP) movements to assess revenue drivers, and delves deeply into gross margin trends to identify product mix upgrades (e.g., rising AI server share) and pricing power. For internet companies like Kuaishou, it adopts a ‘sum-of-the-parts (SOTP) valuation’ mindset—separately valuing legacy advertising operations and emerging AI initiatives (e.g., Kling AI)—with particular emphasis on how independent financing or spin-off potential could re-rate the group’s overall valuation. In analyzing Japanese equities, the firm emphasizes ‘one-time item adjustment’, such as Fujikura’s tariff provision or Honda’s EV losses, to isolate and evaluate the underlying profitability (‘Underlying Profit’) of core operations. Additionally, the report widely uses ‘guidance vs. consensus comparison’, assessing the magnitude of deviation between management’s forward guidance (for next quarter or full year) and market consensus estimates to gauge earnings surprises and identify upcoming equity catalysts.

Methodology notes

• Industry / Sector Analysis FrameworkVolume-price decomposition

  Decomposing revenue growth into two drivers: volume (shipments) and price (average selling price, or ASP)

  In analyzing SMIC and Hua Hong Semiconductor, the firm isolates flat wafer shipment volumes alongside rising ASPs to precisely attribute gross margin improvement to product mix optimization—not merely scale expansion—thereby enhancing assessment of earnings sustainability.

• Valuation MethodologySOTP (Sum-of-the-Parts) Valuation

  Valuing distinct business segments separately and aggregating them to derive total enterprise value

  In evaluating Kuaishou, the firm implicitly applies SOTP logic—treating its fast-growing AI business (Kling) separately from its traditional ad business—and argues that Kling’s standalone spin-off potential creates additional valuation upside beyond its consolidated income contribution.

• Corporate Fundamentals & Financial FrameworkEarnings Quality Analysis

  Stripping out non-recurring items and one-time charges to assess the sustainability of core operational profitability

  When analyzing Honda Motor and Fujikura, the firm explicitly excludes massive EV-related losses and tariff provisions—classifying them as strategic or exceptional—to compute ‘core operating profit’, thereby revealing the true cash-generating ability and operational efficiency of mature businesses.

• Event-Driven & Behavioral FinanceExpectation Gap / Expectations Management

  Comparing actual company disclosures (results or guidance) against market consensus estimates

  The report repeatedly highlights ‘guidance beats’ or ‘misses versus consensus’—e.g., SMIC’s Q2 revenue guidance exceeding consensus by 7 percentage points—as the central rationale for rating and target price adjustments, reflecting market underreaction or mispricing of new information.

Asset mapping & comparison

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

• Foxconn (Hon Hai)

  Beneficiary: AI server rack volume ramp-up and gross margin improvement

  Strengths

  Strong vertical integration, global production footprint, sustainable AI server market share

  Comparison

  Outperforms peers due to successful transition to higher-margin contract manufacturing

• SMIC

  Beneficiary: ASP improvement and Q2 revenue guidance beat

  Strengths

  Optimized product mix, gross margin at upper end of guidance range

  Comparison

  Industry recovery pace faster than market expectations

• Kuaishou

  Beneficiary: Kling AI spin-off expectations unlock value; Detractor: Near-term AI investment pressures profit

  Strengths

  Rapid AI business growth, annualized revenue of USD 500 million

  Weaknesses

  Slowing ad revenue growth, elevated R&D spend

  Comparison

  Possesses AI-driven second growth engine relative to pure-play ad platforms

  Risks

  AI monetization lags expectations, spin-off timeline uncertainty

• Bandai Namco

  Detractor: Weak digital business growth, low visibility into new game pipeline

  Strengths

  Stable toys & hobbies segment

  Weaknesses

  Digital business earnings forecasts cut by 11–16%

  Comparison

  Lacks blockbuster-driven momentum relative to peers, resulting in valuation pressure

  Risks

  Game launch delays, declining IP popularity

• Honda Motor

  Beneficiary: Strong core profitability and sharply upgraded new fiscal-year guidance

  Strengths

  ICE/hybrid vehicle margins at 4.8%, best-in-class cost control

  Weaknesses

  EV business remains unprofitable

  Comparison

  Financial performance more resilient than aggressively EV-focused peers in the near term

  Risks

  Rising raw material costs, lagging EV transition pace

Key data

• Foxconn Q1 Gross Margin6.2%Beat expectations, driven by AI server scale economies and transition to higher-margin contract manufacturing
• SMIC Q2 Revenue Guidance (QoQ Growth)14%–16%Significantly above Goldman Sachs’ prior expectation of 6% and Bloomberg consensus of 7%
• Kuaishou Kling AI Annualized Recurring RevenueUSD 500 millionFar exceeds FY2026 guidance of USD 300 million, signaling explosive AI business growth
• Fujikura U.S. Subsidiary Tariff ProvisionJPY 12.8 billionArising from origin classification disputes; partial recovery is anticipated in future periods
• Honda Motor Core Operating Profit (Excluding BEV Losses)JPY 1 trillionDemonstrates continued strong profitability of ICE/hybrid vehicles
• Bandai Namco New RatingSellDowngraded from Buy; target price lowered to JPY 3,300 due to uncertain digital business outlook

Impact & implications

The report concludes that AI hardware infrastructure—including Foxconn’s servers, SMIC’s advanced nodes, and Winway’s CPO testing—is entering an upward cyclical phase, with related companies poised to benefit from rising capex. For internet firms, commercialization of AI technologies (e.g., Kuaishou’s Kling) has become a new valuation anchor, and spin-offs may emerge as a common path to unlocking value. Within traditional manufacturing, firms with globally flexible supply chains and superior cost control (e.g., Suzuki, Honda) demonstrate greater resilience amid macro volatility. Investors should prioritize companies whose guidance meaningfully exceeds consensus, as this often signals subsequent earnings upgrades over the next several quarters. Conversely, firms reliant on single-hit products and facing weak pipeline visibility (e.g., Bandai Namco) risk downward re-rating of their growth premium.

Risks

• Fujikura faces risks from U.S. tariff policy changes and origin classification uncertainties
• Kuaishou’s heavy AI R&D investment may lead to significant near-term profit erosion
• Bandai Namco’s low visibility into its new game pipeline raises risk of further earnings guidance cuts
• Honda Motor faces rising raw material costs driven by Middle East geopolitical tensions
• Mitsui E&S’s marine propulsion systems business is subject to cyclical profit volatility

What to watch

• Progress on Kuaishou’s Kling AI spin-off and any independent financing activity
• SMIC’s Q2 capacity utilization and sustained ASP trends
• Foxconn’s quarterly AI server rack shipment growth rate
• Impact of Honda’s new vehicle launches on ICE/hybrid vehicle margin support
• Timeline and extent of tariff provision recovery for Fujikura’s U.S. subsidiary