Desay SV's near-term earnings are expected to improve as memory costs are passed through, while overseas operations are viewed as the main long-term growth driver

Overview

This report summarizes Desay SV's August 20, 2026 conference call, focusing on 1H profit pressure in the autonomous-driving business, memory-cost pass-through, mass production of new products, progress in robotics and autonomous logistics vehicles, and overseas expansion. BofA believes operations entered an improvement window in 3Q, raises its 2026–2028 earnings forecasts, and maintains its Buy rating, but lowers its target valuation and target price due to slowing growth and pricing competition.

Core views

Desay SV's autonomous-driving business performed relatively weakly in 1H26: revenue declined 6% YoY, while gross margin fell 5.3 percentage points YoY to 14.5%. Management attributed the pressure to three factors: some memory-cost pass-through contracts were not signed until July–August 2026, preventing full cost recovery in 1H; sensors remained in the ramp-up phase with low initial margins; and some autonomous-driving domain controllers used a low-margin contract-manufacturing model. This means the revenue and gross-margin pressure in 1H reflected both the timing of cost recovery and the effects of new-product ramp-ups and business mix. New products and project progress form the foundation for growth during the remainder of 2026. The fifth-generation smart AI cockpit platform based on Qualcomm's 8797 chipset has entered mass production with Li Auto; the cockpit-driving integrated domain controller based on Qualcomm's 8775 chipset has entered mass production with Chery; the company's proprietary highway NOA algorithm has been released; and L3/L4 domain controllers for passenger vehicles and autonomous logistics vehicles are scheduled for mass production in 2H26. The report believes that the rollout of more cost-competitive autonomous-driving solutions, AI cockpit domain controllers, and integrated domain controllers will continue to make domain controllers the company's core growth engine. Robotics and autonomous logistics vehicles are new business areas highlighted in the report. The company stated that its robotic domain controllers are already supplied to most humanoid-robot OEMs in China. Its autonomous logistics vehicle fleet reached 200 vehicles as of August 2026, and management expects it to increase to 2,000 by the end of 2026. The report views these businesses as potential incremental growth arising from the extension of the company's existing automotive domain-controller capabilities into new application scenarios, although they remain in the expansion and mass-production stages. Overseas expansion is viewed as the primary longer-term growth driver. Management expects overseas business revenue to exceed RMB20 billion in 2030, implying a CAGR of approximately 50% from 2025 to 2030. As of mid-2026, overseas projects on hand approached RMB20 billion, accounting for 27% of all company projects on hand, with major projects expected to begin mass production in 2028. In terms of product mix, overseas orders mainly come from displays, sensors, and smart cockpit-driving integrated products. Geographically, Europe is considered to offer the greatest opportunity, while Southeast Asia is expected to be a rapidly growing market. Because the revenue contribution from major projects is concentrated after 2028, there is a clear time lag between order size and the realization of mass production and revenue. Regarding near-term operations, management said autonomous-driving domain-controller production was strong in July and August 2026 and that memory-cost recovery contracts had been signed with automakers. The report therefore views 3Q26 as a window for operational improvement. Incorporating 2Q26 results and the latest guidance, BofA raises its 2026, 2027, and 2028 net profit forecasts by 5%, 7%, and 10%, respectively. The corresponding revised net profit forecasts are RMB2.839 billion, RMB3.297 billion, and RMB3.800 billion, with EPS of RMB4.76, RMB5.52, and RMB6.37; the report expects earnings to grow approximately 16% YoY in 2026. The forecast revisions do not represent across-the-board revenue upgrades. The 2026 revenue forecast is raised slightly from RMB34.099 billion to RMB34.148 billion, but the 2027 and 2028 revenue forecasts are lowered from RMB37.488 billion and RMB41.254 billion to RMB37.033 billion and RMB40.335 billion, respectively. Meanwhile, 2026–2028 EPS forecasts are raised from RMB4.55, RMB5.17, and RMB5.81 to RMB4.76, RMB5.52, and RMB6.37, respectively; EBITDA forecasts are raised from RMB3.827 billion, RMB4.538 billion, and RMB5.135 billion to RMB4.008 billion, RMB4.717 billion, and RMB5.431 billion, respectively; and the 2026 dividend-per-share forecast is raised from RMB1.37 to RMB1.43. These revisions reflect higher earnings and cash-return forecasts despite lower assumptions for some medium-term revenue. Regarding valuation, BofA maintains its Buy rating but lowers the target price from RMB122 to RMB118. The new target price is based on a 23x P/E applied to forecast EPS for 2H26–1H27, down from 25x previously; 23x is one standard deviation below the historical average P/E since the company's listing. The report believes the lower valuation multiple is justified because a high base will cause the company's growth to slow from peak levels, while pricing and competition may constrain profitability. Thus, the earnings forecast upgrade and target-price reduction are not contradictory: the former reflects near-term cost recovery and operational improvement, while the latter reflects a more cautious valuation of medium-term growth and competitive margin pressure.

Analysis framework

The report first uses disclosures from the conference call and 1H26 data to analyze the causes of the decline in autonomous-driving business revenue and gross margin. It then reviews the mass production of new products, robotics, autonomous logistics vehicles, and the overseas project backlog to assess near-term cost recovery and production changes, as well as the path to medium- and long-term project realization. It subsequently incorporates 2Q26 results and management guidance to revise revenue, EPS, EBITDA, net profit, and dividend forecasts, before deriving the target price using forecast EPS for 2H26–1H27 and the historical P/E range.

Methodology notes

• Valuation MethodP/E and PEG Valuation

  Target P/E Valuation

  The report uses forecast EPS for 2H26–1H27 as the earnings basis, applies a target P/E of 23x, and derives a target price of RMB118. The multiple is reduced from 25x previously and set at one standard deviation below the historical average P/E since listing.

• Event Trading and Behavioral FinanceEvent-driven analysis

  Conference Call Takeaways and Operating Guidance Update

  Based on information disclosed during the August 20, 2026 conference call regarding cost pass-through contracts, production, new projects, and overseas orders, the report reassesses operational changes in 3Q and revises its earnings forecasts.

• Company Fundamentals and Financial Framework

  iQmethod Standardized Metrics System

  The report uses BofA's iQmethod business-performance, earnings-quality, and valuation metrics to present returns on capital, margins, cash realization, leverage, and valuation on a consistent basis, supported by historical and forecast financial data from the analyst model.

Asset mapping & comparison

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

• Desay SV (002920.SZ)

  The report's sole core coverage company, whose growth and valuation thesis is jointly determined by autonomous-driving and smart-cockpit domain controllers, new businesses, and overseas expansion.

  Strengths

  Domain controllers are viewed as the core growth engine; multiple new platforms have entered mass production or are scheduled for mass production in 2H26; robotic domain controllers cover most humanoid-robot OEMs in China; and overseas projects on hand approach RMB20 billion.

  Weaknesses

  1H26 autonomous-driving revenue declined 6% YoY and gross margin fell to 14.5%; sensors are in a low-margin ramp-up phase, some contract-manufactured domain-controller businesses have relatively low gross margins, and pricing and competition may continue to constrain profitability.

  Comparison

  The report does not provide an operating or valuation comparison with specific peers.

  Risks

  Constraints on automotive-chip supply, weaker automobile or EV sales in China, intensifying competition, and tighter regulation of intelligent connected vehicles; stronger-than-expected orders and bargaining power for high-end ADAS domain controllers would represent upside risks.

Key data

• 1H26 Autonomous-Driving Business RevenueDown 6% YoYThe autonomous-driving business performed relatively weakly in 1H
• 1H26 Autonomous-Driving Business Gross Margin14.5%Down 5.3 percentage points YoY
• Overseas Projects on HandApproaching RMB20 billionAs of mid-2026, accounting for 27% of the company's projects on hand
• 2030 Overseas Revenue TargetMore than RMB20 billionManagement expectation; implying a CAGR of approximately 50% from 2025 to 2030
• Autonomous Logistics Vehicle Fleet Size200 to 2,000 vehicles200 vehicles in August 2026; management expects 2,000 by the end of 2026
• 2026–2028 Net Profit Forecast Revisions+5%/+7%/+10%Raised based on 2Q26 results and the latest management guidance
• 2026–2028 Revised Net ProfitRMB2.839 billion/RMB3.297 billion/RMB3.800 billionLatest BofA forecasts
• 2026–2028 EPSRMB4.76/RMB5.52/RMB6.37Previous forecasts were RMB4.55/RMB5.17/RMB5.81, respectively
• 2026–2028 Revenue ForecastsRMB34.148 billion/RMB37.033 billion/RMB40.335 billionPrevious forecasts were RMB34.099 billion/RMB37.488 billion/RMB41.254 billion, respectively
• 2026–2028 EBITDA ForecastsRMB4.008 billion/RMB4.717 billion/RMB5.431 billionPrevious forecasts were RMB3.827 billion/RMB4.538 billion/RMB5.135 billion, respectively
• 2026 Earnings GrowthUp 16% YoYThe report's expectation for 2026 earnings
• Target Price and Target P/ERMB118; 23xThe previous target price was RMB122 and the previous target P/E was 25x; valuation is based on forecast EPS for 2H26–1H27
• Reference Share Price in the Report84.69 CNYPrice shown on the report's stock data page
• 2025 Business Revenue MixCockpit 63%/Autonomous Driving 30%/Internet of Vehicles 7%The respective shares of the company's total 2025 sales generated by the three businesses

Impact & implications

The report believes that memory-cost recovery contracts and higher autonomous-driving domain-controller production in 3Q are expected to ease the profit pressure experienced in 1H. Next-generation cockpit and integrated domain controllers, robotics, and autonomous logistics vehicles provide incremental growth, while overseas projects may become a more significant revenue source from 2028. However, the lower target valuation multiple indicates that BofA is also accounting for slower growth due to a high base and the constraints that pricing and competition may impose on profitability.

Risks

• If ADAS domain-controller growth exceeds expectations and the company secures the majority of high-end ADAS domain-controller orders, performance could exceed the report's forecasts.
• If the company's bargaining power with automakers strengthens and drives gross-margin improvement, earnings could exceed the report's forecasts.
• Constraints on automotive-chip supply could affect production and deliveries.
• Weaker-than-expected automobile or EV sales in China could suppress demand.
• Intensifying competition could affect pricing, orders, and profitability.
• Tighter regulation of intelligent connected vehicle development could affect the progress of related businesses.

What to watch

• Monitor the actual extent to which memory-cost recovery contracts improve the autonomous-driving business's gross margin in 3Q26.
• Monitor whether the strong autonomous-driving domain-controller production seen in July–August 2026 can continue.
• Monitor whether L3/L4 domain controllers for passenger vehicles and autonomous logistics vehicles enter mass production as scheduled in 2H26.
• Monitor whether the autonomous logistics vehicle fleet can expand from 200 vehicles in August 2026 to 2,000 by year-end.
• Monitor whether overseas projects on hand approaching RMB20 billion begin mass production as scheduled from 2028 and convert into revenue.
• Monitor project progress in Europe and Southeast Asia, as well as the realization of overseas orders for displays, sensors, and cockpit-driving integrated products.