UBS Maintains Buy on Horizon Robotics, Lowers Target Price to HK$10

Overview

UBS released a report maintaining its 'Buy' rating on Horizon Robotics (9660.HK) while lowering its 12-month target price by 24% from HK$13.20 to HK$10.00. The downgrade primarily reflects concerns over weak Chinese auto market demand and higher R&D expense assumptions, leading to an 8–14% reduction in 2026–28 revenue forecasts. Nevertheless, the firm remains confident in the company's long-term growth thesis, expecting a robust 61% CAGR in revenue from 2025 to 2028, driven by increasing market share in high-end autonomous driving (AD) SoCs and cockpit applications starting to meaningfully contribute from 2027 onward.

Core views

Core View 1: Continued market share gains in high-end AD SoCs. Despite intensifying competition, UBS believes Horizon will further expand its market share thanks to first-mover advantage, business scale (unit cost advantage), and vertical integration capabilities. In 2025, the company is projected to hold 47.7% and 14.4% market shares in China’s entry-level ADAS and mid-to-high-end AD segments, respectively—comparable to Huawei. Its HSD (Horizon SuperDrive) solution shipped 22,000 units in Q4 2025, receiving positive user feedback. Vehicles equipped with HSD accounted for 83% of total sales volume, and HSD users achieved a 41% penetration rate in autonomous driving mileage—leading the industry. Core View 2: Cockpit-driving converged chips emerge as a new growth engine. With DRAM supply tightness and rising prices, automakers are under increasing pressure to cut costs. Horizon’s newly launched Starry converged SoC can save 20–24GB of DDR memory per vehicle through shared domain controllers and memory architecture, reducing BOM costs by RMB 2,000–3,000. UBS expects this chip to become a key growth driver starting in H2 2026, contributing 31% of product solutions revenue by 2028. Starry outperforms global peers in key specifications such as computing power and memory bandwidth and leads domestic competitors in mass production timelines. Core View 3: Improved profitability outlook but delayed timeline. Due to lower revenue forecasts and higher R&D assumptions, UBS significantly reduced its adjusted EPS estimates for 2026–28 by 82%–264%, now expecting the company to reach profitability in 2028 instead of the previously anticipated 2027. However, as revenue scales up, blended gross margin is expected to remain above 55% during 2026–28, with EBIT margin roughly flat in 2028 and reaching the industry norm of 10–15% by 2029.

Analysis framework

UBS’s analysis centers on 'volume-price decomposition' and 'supply-demand dynamics.' First, it breaks down revenue drivers for autonomous driving solutions into shipment growth (projected 23% CAGR from 2025 to 2028) and average selling price (ASP) increases (expected to rise from USD 52/unit in 2025 to USD 169/unit in 2028), highlighting value enhancement from product mix shifting toward high-end offerings. Second, based on supply chain research, it analyzes how DRAM price cycles impact automaker cost pressures, thereby inferring the economic advantages and market adoption potential of cockpit-driving convergence solutions. Finally, it applies a DCF valuation model, adjusting WACC (Weighted Average Cost of Capital) to 10.0% to reflect changing risk perceptions, and compares peer valuations (2027 P/S of 7.7x) to argue that the current share price does not fully reflect Horizon’s high-growth potential.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  DCF Discounted Cash Flow Model

  The firm uses a DCF model to calculate intrinsic value by forecasting future free cash flows and discounting them to present value. WACC was raised from 9.5% to 10.0% this time, reflecting a shift in risk appetite, which directly led to the target price reduction.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Revenue Driver Breakdown

  Revenue growth is decomposed into 'shipment growth' and 'average selling price (ASP) increase.' The report emphasizes that Horizon’s high revenue growth stems not only from higher volumes but also from higher ASPs (increasing share of high-end chips), which helps illustrate improving earnings quality.

• Industry/Industrial Analysis FrameworkSubstitution Effect Analysis

  BOM Cost Savings-Driven Substitution

  Analyzes how new technologies (converged SoCs) substitute legacy discrete architectures (separate AD + separate cockpit chips and memory) to lower customer costs. In a context of rising DRAM prices, cost-saving solutions gain competitive edge—this is the key logic for assessing new product penetration rates.

• Competitive & Strategic FrameworkMoat / competitive advantage

  Economies of Scale and First-Mover Advantage

  Highlights Horizon’s position as a domestic leader whose large shipment volumes confer unit cost advantages and data accumulation (for algorithm iteration), forming competitive barriers against new entrants and automaker in-house chip development.

Asset mapping & comparison

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

• Horizon Robotics (9660.HK)

  Beneficiary: As China’s leading AD SoC supplier, directly benefits from rising L2+ and above AD penetration and localization trends.

  Strengths

  Leading market share in mid-to-high-end AD SoCs (14.4%); 7nm chip mass production lead of ~6 quarters over domestic rivals; complete toolchain and end-to-end algorithm capabilities; newly launched Starry converged chip offers significant cost advantages.

  Weaknesses

  High R&D spending causing near-term losses; profitability delayed to 2028; faces pressure from automaker in-house chip development and intense third-party competition.

  Comparison

  Compared to Huawei, Horizon’s independence as a third-party supplier offers greater openness; versus global giants like NVIDIA, it holds advantages in geopolitics and local service responsiveness.

  Risks

  Order acquisition below expectations; EV sales decline; intensified supplier competition pressuring gross margins.

Key data

• Target PriceHK$10.0024% lower than previous HK$13.20
• 2025–28E Revenue CAGR61%Strong long-term compound growth despite near-term forecast cuts
• 2025 Mid-to-High-End AD Market Share14.4%Significantly up from ~10% in 2024, on par with major domestic competitors
• Starry Chip Projected Revenue Contribution in 202831%Expected share of product solutions revenue from cockpit-driving converged chips
• 2027E P/S Valuation7.7xOnly 4% above peer average, yet Horizon’s 2028 sales growth is projected to exceed peers by 20 percentage points
• HSD User Autonomous Driving Mileage Penetration Rate41%2025 figure, far exceeding the industry average of ~10%

Impact & implications

UBS views Horizon Robotics as a primary beneficiary of China’s autonomous driving adoption and domestic semiconductor substitution trends. Although facing near-term headwinds from weak auto sales and intensifying competition, its technological leadership and cost advantages secure long-term market share expansion. The new converged chip product line not only unlocks the cockpit market but also enhances customer stickiness by helping automakers reduce costs. The stock has declined 26.4% year-to-date, partially pricing in market concerns about competition and profit visibility, making current valuation attractive. Investors should shift focus from short-term sales volatility to high-end product penetration rates and new platform wins.

Risks

• Order acquisition below expectations
• Electric vehicle shipments below expectations
• Intensified competition among suppliers
• Risk of key customers developing in-house autonomous driving solutions

What to watch

• Pace of adoption for high-end AD (L2++/L3)
• Design-win progress and mass production timeline for Starry cockpit-driving converged chip
• Ability to sustain gross margin above 55%
• Achievement of 2028 breakeven target