2Q profitability recovers; iPhone upgrades and new businesses support growth; BofA prefers Lens Technology's H-shares

Overview

The report assesses Lens Technology's 2Q profitability recovery, core-business opportunities arising from iPhone specification upgrades, and progress in new businesses such as AI servers, robots, and TGV. BofA raised its 2026 earnings forecast and H/A-share target prices but continues to prefer the H-shares based on valuation differences.

Core views

Lens Technology returned to profit in 2Q, with net profit reaching RMB726 million and exceeding expectations, mainly benefiting from gross-margin improvement and expense control. First-half revenue was RMB28.9 billion, up 30% quarter over quarter and down 12% year over year, respectively 4% below BofA's forecast and 8% below consensus; gross margin was 14.7%, respectively 0.4 and 0.3 percentage points above BofA and consensus expectations. Operating profit was RMB881 million, down 75% quarter over quarter and up 9% year over year, 41% above BofA's forecast but 19% below consensus. The report therefore believes the company's profitability has returned to an improving trajectory, although revenue has not yet fully met expectations. The main growth thesis for the core consumer electronics business stems from iPhone specification upgrades in 2026—2027. The report expects Lens Technology to benefit from the launch of a foldable model in the second half of 2026, as the company is the exclusive supplier of its UTG ultra-thin glass; the Pro series may upgrade to 3D glass in 2027. Meanwhile, following the resumption of specification upgrades for midframes, the company is expected to continue gaining share in titanium-alloy enclosures. These changes are expected to increase Lens Technology's content value per device and improve margins in its structural-components business. The report positions the company as a major beneficiary of the smartphone specification-upgrade cycle, particularly foldable-display upgrades. The company is also reducing its reliance on traditional smartphones and PCs by expanding into humanoid robots, AI server mechanical components and liquid cooling, aerospace, and the TGV through-glass-via business developed with Intel. Management stated that the company has prepared AI server mechanical-component capacity for 360,000 racks and liquid-cooling capacity for 500,000 racks, which are currently undergoing customer certification. TGV is expected to begin small-batch shipments in 2026 and enter large-scale production in 2027. The report acknowledges these diversification investments but emphasizes that near-term contributions from new businesses remain small, with their growth value dependent on certification, project wins, and mass-production ramp-up progress. The company's existing business base spans consumer electronics, smart vehicles, robots, AI glasses, XR headsets, and other emerging smart devices, extending from glass and mechanical structural components and related modules to complete-device assembly. Apple, Xiaomi, and Tesla are its three largest customers. In addition to its main production bases in China, the company is expanding facilities in Vietnam, Thailand, and Mexico. BofA believes this customer, product, and capacity footprint enables the company to capture smartphone specification upgrades and non-handset opportunities in vehicles, smart glasses, and robots. After incorporating 2Q results, BofA raised its 2026 earnings forecast by 6% and fine-tuned its 2027—2028 forecasts. It raised 2026 EPS from RMB0.82 to RMB0.88; raised 2026 EBITDA from RMB10.5125 billion to RMB10.5375 billion; lowered 2027 EBITDA from RMB12.3223 billion to RMB12.2110 billion; and lowered 2028 EBITDA from RMB14.0418 billion to RMB13.9174 billion. BofA's 2026 earnings forecast is broadly in line with consensus, while its 2027—2028 forecasts are 4%—8% below consensus. Its model forecasts a 32% earnings CAGR for 2026—2028, with adjusted net profit of RMB4.614 billion, RMB6.456 billion, and RMB7.997 billion, respectively, and EPS of RMB0.88, RMB1.23, and RMB1.52, representing year-over-year growth of 15.2%, 39.9%, and 23.9%. Revenue over the same period is forecast at RMB77.843 billion, RMB91.462 billion, and RMB105.248 billion, with operating margins rising from 6.4% to 7.1% and 7.8%. Cash-flow forecasts show 2026 operating cash flow of RMB7.190 billion, capital expenditure of RMB6.5 billion, and free cash flow of only RMB690 million. Free cash flow is expected to recover to RMB5.686 billion in 2027 and RMB7.767 billion in 2028. Net debt is expected to shift from RMB1.693 billion in 2026 to net cash of RMB1.455 billion in 2027 and expand to net cash of RMB5.671 billion in 2028. Forecast ROE rises from 8.2% in 2026 to 10.9% in 2027 and 12.6% in 2028, while interest coverage increases from 22.8x to 29.7x and 37.1x. Valuation is central to the divergence between the H-share and A-share ratings. The H-shares currently trade at approximately 18x one-year forward P/E, below their historical average; the A-shares trade at approximately 33x, above their historical average. The report raises the H-share target price from HKD24 to HKD27 and maintains Buy, citing core-business expansion and new-business diversification. The front-page revision note states that the HKD27 target is based on an unchanged 25x expected P/E for the second half of 2026 through the first half of 2027; the valuation-basis page, however, states that the HKD27 target is based on 20x expected P/E for the same period, slightly below the H-shares' historical trading average of 21x, while also reflecting iPhone upgrades, new-business opportunities, and market concerns about Android handset demand. The report raises the A-share target price from RMB27 to RMB30 by applying a 30% premium to the H-share valuation; this premium is based on the A-shares' average share-price premium to the H-shares since the H-share listing. Despite raising the target price, BofA maintains Underperform on the A-shares because their approximately 30x 2027E P/E is considered demanding.

Analysis framework

BofA first compares 2Q and first-half revenue, gross margin, and operating profit with its own forecasts and market consensus to assess the extent of the profitability recovery. It then explains core-business growth through iPhone product specifications, supply share, and content value per device, before evaluating new businesses based on capacity, certification, and mass-production timelines. Finally, it updates its 2026—2028 earnings and cash-flow models and determines target prices and ratings using forward P/E for the H-shares and the historical A/H-share premium for the A-shares.

Methodology notes

• Valuation methodologyP/E and PEG valuation

  Forward P/E valuation

  The report determines the H-share target price by combining forecast EPS with a target P/E multiple and assesses H/A-share valuation levels by comparing current one-year forward P/E with the historical average and the range of plus or minus one standard deviation.

• Valuation methodology

  Historical average A/H-share premium method

  The A-share target price is based on the H-share valuation plus a 30% premium, derived from the A-shares' average share-price premium to the H-shares since the H-share listing.

• Corporate fundamentals and financial framework

  BofA iQmethod standard metrics framework

  The report evaluates the company using standardized indicators covering business performance, earnings quality, and valuation, including return on capital, ROE, operating margin, cash realization ratio, net debt-to-equity ratio, and interest coverage, together with historical and forecast three-statement data from the analyst model.

• Industry analysis frameworkVolume-price decomposition

  Analysis of specification upgrades, market share, and content value per device

  The report breaks down upgrades in foldable-display UTG, 3D glass, and titanium-alloy midframes into supply share, content value per device, and margin changes to explain the growth path of the core structural-components business.

Asset mapping & comparison

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

• Lens Technology H-shares (06613.HK)

  The report believes the H-shares can benefit from core-business expansion, iPhone specification upgrades, and new-business diversification, and maintains a Buy rating.

  Strengths

  Approximately 18x one-year forward P/E is below the historical average; the company's foldable-display UTG supply position, 3D-glass upgrades, and new-business footprint support growth.

  Weaknesses

  New businesses make only a small near-term contribution, while Android smartphone demand remains a market concern.

  Comparison

  Compared with the A-shares, the H-shares have a lower valuation and are therefore the report's preferred listed security.

  Risks

  Smartphone and smart-vehicle demand, project ramp-ups, new-business orders, China-US geopolitics, and tariff policies could all fall short of expectations.

• Lens Technology A-shares (300433.SZ)

  The improvement in the company's fundamentals also applies to the A-shares, but the report maintains an Underperform rating due to their demanding valuation.

  Strengths

  The A-shares share the company's business opportunities in consumer electronics structural components, smart vehicles, robots, AI servers, and other fields.

  Weaknesses

  Approximately 33x one-year forward P/E is above the historical average, while the approximately 30x 2027E P/E is considered elevated by the report.

  Comparison

  The RMB30 target price applies a 30% premium to the H-share target price, based on the A-shares' average share-price premium to the H-shares since the H-share listing.

  Risks

  In addition to operating and geopolitical risks, the higher valuation could amplify the impact of slower-than-expected project progress or demand.

Key data

• 2Q net profitRMB726 millionReturned to profit in 2Q and exceeded expectations, driven by improved gross margin and expense control
• First-half revenueRMB28.9 billionUp 30% quarter over quarter and down 12% year over year; 4% below BofA's forecast and 8% below consensus
• First-half gross margin14.7%0.4 percentage points above BofA's forecast and 0.3 percentage points above consensus
• Operating profitRMB881 millionDown 75% quarter over quarter and up 9% year over year; 41% above BofA's forecast and 19% below consensus
• 2026 earnings forecast revisionRaised by 6%2026 EPS raised from RMB0.82 to RMB0.88
• 2026—2028 adjusted net profitRMB4.614 billion, RMB6.456 billion, RMB7.997 billionThe model implies a 32% earnings CAGR for 2026—2028
• 2026—2028 EPSRMB0.88, RMB1.23, RMB1.52Year-over-year growth of 15.2%, 39.9%, and 23.9%, respectively
• 2026—2028 revenue forecastsRMB77.843 billion, RMB91.462 billion, RMB105.248 billionOperating margins are forecast at 6.4%, 7.1%, and 7.8%, respectively
• 2026—2028 free cash flowRMB690 million, RMB5.686 billion, RMB7.767 billion2026 operating cash flow is RMB7.190 billion and capital expenditure is RMB6.5 billion, followed by a recovery in free cash flow
• AI server capacityMechanical components for 360,000 racks; liquid cooling for 500,000 racksCapacity is ready and currently at the certification stage
• TGV mass-production timelineSmall-batch production in 2026; large-scale production in 2027Progress of the through-glass-via business developed with Intel
• H-share valuationApproximately 18x one-year forward P/EBelow the historical average; the report raises the target price from HKD24 to HKD27
• A-share valuationApproximately 33x one-year forward P/EAbove the historical average; the RMB30 target price is determined by adding a 30% historical average premium to the H-share target price
• Difference between 2027—2028 forecasts and consensus4%—8% belowBofA's 2026 earnings forecast is broadly in line with consensus

Impact & implications

The report believes improvements in gross margin and expense control indicate that Lens Technology's profitability is recovering, while upgrades involving foldable-display UTG, 3D glass, and titanium-alloy midframes could further increase core-business content value per device and margins. AI servers, robots, aerospace, and TGV provide medium-term diversification opportunities, but near-term contributions remain dependent on certification and mass production. Because the H-shares trade below their historical valuation average while the A-shares trade above theirs, BofA continues to prefer the H-shares while remaining positive on the company's fundamentals.

Risks

• Smartphone demand grows more slowly than expected.
• Smartphone specification upgrades proceed more slowly than expected.
• Smart-vehicle shipments and new-project ramp-ups progress more slowly than expected.
• Project wins in new areas such as AI/AR glasses and robots proceed more slowly than expected.
• China-US geopolitical tensions intensify and tariff-policy uncertainty increases.

What to watch

• Monitor the launch of the foldable model in the second half of 2026 and progress in Lens Technology's exclusive UTG supply.
• Monitor the Pro series' 3D-glass upgrade in 2027 and gains in titanium-alloy midframe share.
• Monitor customer certification and project implementation for AI server mechanical-component and liquid-cooling capacity.
• Monitor progress toward small-batch TGV shipments in 2026 and large-scale production in 2027.
• Monitor demand and ramp-up speed for smartphones, smart vehicles, AI/AR glasses, and robot projects.
• Monitor changes in China-US geopolitics and tariff policies.