China Resources (CR Micro) (688396) Report Interpretation

Overview

UBS's earnings review of China Resources (CR Micro) argues that improving power-semiconductor demand, product mix and pricing are lifting core profitability. The report keeps a Buy rating, while lowering the target price modestly to reflect the near-term earnings drag from accelerated expansion at the Shenzhen 12-inch foundry.

Core views

CR Micro's core businesses improved in Q2 2026 broadly as UBS expected. EBIT reached Rmb388m, compared with UBS's Rmb380m estimate, rising 43% year on year and 71% quarter on quarter. UBS attributes the improvement to stronger power-semiconductor industry fundamentals and tight specialty-foundry capacity. H1 2026 gross margin increased 1.0 percentage point year on year to 26.6%; the products & solutions and manufacturing & services segments each improved, with gross margins rising 1.1ppt to 22.9% and 1.2ppt to 32.3%, respectively. Revenue reached a record Rmb3.271bn in Q2, supported by stronger downstream markets and active product-mix upgrades. Management identified new energy, data centres and industrial control as core growth drivers. UBS highlights accelerating MOSFET adoption in higher-value applications including server power supplies, on-board chargers, solar-plus-storage, drones and robotics. Silicon carbide accounted for 85% of revenue related to autos and energy storage. Some orders have visibility of up to nine months and undelivered orders reached a new high. Two price increases, in February and July, are expected to feed through in H2 2026; UBS therefore raises its 2026-28E gross-margin forecasts by 0.2-0.8ppt to 27-30%. The report sees a trade-off from the company's transition toward a platform-type, specialty-process manufacturer. The Shenzhen-based 12-inch fab in which CR Micro holds a stake is ramping up from 25k wafers per month and could reach 40k by end-2026, with a possible further expansion to 65k wafers per month given process advantages and strong demand from external core customers. Faster expansion than UBS expected raises near-term depreciation pressure. Runpeng Semiconductor (Shenzhen) Co, a subsidiary still in an accelerated capacity-expansion stage, posted a Rmb646m net loss in H1 2026. UBS consequently lowers 2026-27E investment income from associates and joint ventures to losses of Rmb600m and Rmb250m, respectively, from losses of Rmb400m and Rmb100m. It nevertheless expects foundry investment income to turn positive in 2028 as the fab ramps. Reflecting the H1 result and the ramp-up burden, UBS cuts 2026E earnings by 7%. It raises 2027-28E earnings by 1-2%, chiefly because of its higher gross-margin assumptions. The valuation is based on an average 2027-28E price-to-book multiple of 4.0x, reduced from 4.1x, producing a new target price of Rmb81.30 versus Rmb83.40 previously. UBS reiterates Buy, with the report showing 38.6% forecast price appreciation and a 0.2% forecast dividend yield.

Analysis framework

UBS reviews Q2 and H1 operating performance, separates segment-level margin changes, connects downstream demand, product mix and pricing to future gross margins, and then weighs those benefits against the depreciation and investment-income drag from foundry ramp-up. It revises earnings forecasts and applies a relative price-to-book valuation multiple to derive the target price.

Methodology notes

• Valuation methodsPB valuation

  Relative price-to-book valuation

  UBS values CR Micro using an average 2027-28E P/BV multiple of 4.0x, reduced from 4.1x, to derive the Rmb81.30 target price.

• Industry AnalysisVolume-price decomposition

  Margin effects from pricing and product mix

  The report links two price increases and a shift toward higher-value MOSFET and SiC applications to higher gross-margin assumptions.

• Industry AnalysisSupply-demand framework

  Power-semiconductor and specialty-foundry supply-demand conditions

  UBS uses stronger downstream demand, order visibility and tight specialty-foundry capacity to support its operating outlook.

Asset mapping & comparison

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

• China Resources (CR Micro) (688396.SH)

  Primary covered company; UBS expects improving power-semiconductor profitability and a longer-term foundry-business uplift.

  Strengths

  Improving core-business margins, strong downstream power-semiconductor demand, higher-value MOSFET and SiC exposure, pricing actions, and order visibility extending to nine months for part of the order book.

  Weaknesses

  Accelerated foundry capacity expansion and Runpeng's losses create near-term profitability pressure.

  Comparison

  The company ranked No. 3 by discrete revenue among power-semiconductor companies headquartered in China, according to Gartner.

  Risks

  Slower EV and green-energy transition, weaker downstream demand, more intense domestic competition, or products failing to meet market needs.

Key data

• Q2 2026 EBITRmb388m+43% YoY and +71% QoQ; versus UBS estimate of Rmb380m
• Q2 2026 revenueRmb3.271bnRecord high
• H1 2026 gross margin26.6%+1.0ppt YoY
• Products & solutions gross margin22.9%+1.1ppt YoY in H1 2026
• Manufacturing & services gross margin32.3%+1.2ppt YoY in H1 2026
• Runpeng Semiconductor H1 2026 net lossRmb646mRecorded during accelerated capacity expansion
• Shenzhen 12-inch fab capacity25k WPM currently; 40k WPM by end-2026Potential further ramp to 65k WPM
• 2026-28E gross-margin forecast27-30%Raised by 0.2-0.8ppt
• 2026E / 2027-28E earnings revision-7% / +1-2%2026E cut for ramp-up profitability pressure; later years raised for higher gross-margin assumptions

Impact & implications

UBS views the earnings result as evidence that CR Micro's power-semiconductor businesses are benefiting from stronger demand and a higher-value product mix. The report expects these drivers to improve margins, but sees faster foundry expansion and associated depreciation as a meaningful near-term earnings headwind before the foundry contribution improves after ramp-up.

Risks

• A slower-than-expected transition to EV and green energy could weaken demand.
• Downstream application demand could recover more slowly than expected.
• Domestic competition could become more intense.
• The company's products may fail to meet market needs.