Goldman Sachs Maintains Sell Rating on China Resources Microelectronics, Raises Target Price to 42.69 CNY

Overview

Goldman Sachs releases earnings review report on China Resources Microelectronics, holding positive view on fundamentals. Believes 12-inch production line capacity ramp-up, stable capacity utilization, and product price hike announced in February 2026 will support revenue growth and gross margin improvement. Company's layout in emerging markets such as AI server power components and optical modules is expected to become new growth engines. However, given high current valuation levels and intense competition in power semiconductor market, Goldman Sachs maintains "Sell" rating on China Resources Microelectronics, raising 12-month target price from 37.46 CNY to 42.69 CNY, rolling earnings forecast base year to 2027 and introducing 2028 forecast.

Core views

Business Expansion & Growth Drivers: China Resources Microelectronics is leveraging its IDM business model to capture demand growth in emerging markets. In AI server power components area, products cover PSU, HVDC, SST, IBC, POL links, providing overall solutions for power devices and modules. Management expects this business revenue contribution to continue increasing in coming years. Additionally, company is cooperating with a leading optical module vendor to develop next-gen optical module power drive modules, relying on high-density PoP packaging technology, expected mass production in second half of 2026. These new business layouts are core reason for revenue forecast adjustment. Profit Forecast Adjustment: Based on performance in Q4 2025 and Q1 2026, Goldman Sachs upgraded financial forecasts for 2026-2027. Among them, revenue forecasts for 2026-2027 adjusted up 6% and 9% respectively, reflecting business expansion in AI servers, optical modules, robotics etc.; net profit forecast adjusted up 1% and 5%. For gross margins, benefiting from product price hikes and high capacity utilization for foundry services, 2026-2027 gross margin forecast adjusted up 0.3 to 0.6 percentage points. Meanwhile, R&D expense forecast also adjusted up correspondingly to match R&D investment for AI-related end products. Report also introduces 2028 earnings forecast for first time. Valuation & Rating Logic: Despite favorable fundamental trend, Goldman Sachs maintains "Sell" rating, core reasons are overvaluation and industry competition pressure. Target price increase mainly due to switching of valuation base year and slight multiple increase: 2027 target P/E updated from 29.0x to 31.5x, this adjustment reflects industry revaluation obtained by power semiconductors due to increased AI data center applications. Even so, 31.5x target P/E still remains between company historical forward P/E mean and mean minus one standard deviation, showing institutions while recognizing industry prosperity, remain cautious about individual stock's current premium level.

Analysis framework

Goldman Sachs adopted "separation of fundamental trends and valuation constraints" analysis framework in this report. On one hand, by tracking 12-inch production line capacity utilization, product price hike magnitude, and new business customer verification progress (AI server power, optical modules), confirm bottom-up operating level improvements, thereby upgrading revenue and gross margin forecasts. On the other hand, adopt relative valuation method (P/E) for pricing, determining reasonable target P/E multiple by regressing target company expected earnings growth rate with industry peer companies. Characteristic of this analysis method is, even acknowledging company fundamentals are favorable, if current market price implied valuation multiple significantly higher than peer regression line or self historical reasonable range, can still give negative rating, reflecting mature market "good company does not equal good stock" pricing logic.

Methodology notes

• Valuation MethodPE/PEG valuation

  Relative valuation based on correlation between peer P/E and EPS growth rate

  The report does not simply determine a P/E multiple arbitrarily, but selects a group of comparable companies, regresses their forward P/E with expected earnings growth rate, deriving industry pricing laws, then derives reasonable target P/E according to China Resources Microelectronics' own growth positioning. This method allows valuation multiples to have basis, avoids subjective assumption, and also quantifies reflection of industry-wide revaluation effect brought by AI data center applications.

• Company Fundamentals & Financial FrameworkProfitability Quality Analysis

  Decomposition of Gross Margin Change Drivers

  When judging gross margin improvement, the report clearly distinguishes two independent drivers: 'Product Price Hikes' and 'Capacity Utilization Increase'. Former reflects supply-demand pattern and company bargaining power, latter reflects fixed cost spreading effect. This decomposition helps judge sustainability of margin improvement: if relying only on price hikes without utilization increase, once prices fall back, margins will quickly revert; if both resonate, improvement foundation is more solid.

Asset mapping & comparison

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

• China Resources Microelectronics (688396.SS)

  Report covered subject, fundamentals improved but valuation too high

  Strengths

  IDM model supports AI server power full solution capability; 12-inch production line capacity ramp-up combined with price hike drives margin repair; Optical module power drive module 2026H2 mass production imminent

  Weaknesses

  Current valuation significantly higher than historical reasonable range and peer levels; Power semiconductor market competition intense

  Comparison

  Target P/E 31.5x is between self historical mean and mean minus one standard deviation, lower than some peers obtaining higher premium due to AI concept

  Risks

  MOSFET/IGBT/SiC price trend below expectations; New customer introduction and market share acquisition slower than expected; IGBT & Power IC new product R&D progress delay; IGBT/SiC track new entrants increase intensifying competition

Key data

• 2026E Revenue Forecast Adjustment13.235 Billion CNYAdjusted up 6% compared to old forecast, reflecting expansion of new businesses such as AI servers, optical modules
• 2027E Revenue Forecast Adjustment14.808 Billion CNYAdjusted up 9% compared to old forecast
• 2026E Net Profit Forecast Adjustment1.476 Billion CNYAdjusted up 1% compared to old forecast
• 2027E Net Profit Forecast Adjustment1.797 Billion CNYAdjusted up 5% compared to old forecast
• 2026E Gross Margin Forecast27.9%Adjusted up 0.3 percentage points vs old forecast
• 2027E Gross Margin Forecast28.6%Adjusted up 0.6 percentage points vs old forecast
• 2027E Target P/E31.5xPreviously 29.0x, reflecting industry revaluation brought by AI data center applications
• 12-month Target Price42.69 CNYPreviously 37.46 CNY, implied downside space 36.9%

Impact & implications

Report believes China Resources Microelectronics' layout in AI server power and optical module fields verifies its IDM model's ability to extend to high-value-added applications, helpful for optimizing product structure and improving medium-to-long-term profit center. 12-inch production line capacity release and product price hikes form resonance, providing support for short-term gross margin repair. However, current stock price has fully or even excessively reflected above positive expectations. Under background where power semiconductor industry competition pattern has not improved significantly, valuation safety margin is insufficient. For investors focusing on this company, need to distinguish differences between "operating trend improvement" and "investment value", beware of risk that fundamental improvement is digested by high valuation.

Risks

• Average price trend of MOSFET, IGBT, SiC products below expectations
• New design introduction and market share acquisition speed slower than expected
• IGBT and Power IC etc. new product R&D progress below expectations
• Assumption of new entrants reducing competition in IGBT/SiC track broken, actual competition intensifies

What to watch

• Customer verification and order conversion progress for each product line of AI server power components (PSU/HVDC/SST etc.)
• Whether next-gen optical module power drive module mass production in second half of 2026 proceeds as scheduled
• 12-inch production line capacity utilization and subsequent expansion rhythm
• Overall ASP trend of power semiconductor industry and competitor capacity placement situation