Revenue recognition continued to accelerate in 1q26, with backlog remaining strong

Overview

This report is Morgan Stanley's 1q26 earnings review of Ningbo Orient Wires & Cables Co Ltd (603606.SS). The report believes the company continued to accelerate project revenue recognition in the first quarter, with both revenue and net profit achieving relatively fast year-on-year growth; although product mix caused quarter-on-quarter pressure on gross margin, backlog, inventory, and contract liabilities support visibility for subsequent growth.

Core views

The core view is that the company's 1q26 performance was broadly in line with the investment thesis, with accelerated revenue recognition driving net profit up 32.3% year-on-year. Submarine cables and high-voltage land cables remained the main revenue sources, marine engineering business recorded strong year-on-year growth, and backlog stayed at a relatively high level. Morgan Stanley maintained its Overweight rating and Rmb73.32 target price, seeing 20% upside from the current share price.

Analysis framework

The report uses quarterly financial results, revenue by segment, gross margin changes, backlog, inventory, and contract liabilities as its main observation dimensions, and combines Morgan Stanley ModelWare forecasts, Refinitiv consensus estimates, and a discounted cash flow valuation framework to assess the company's long-term value.

Methodology notes

• Valuation methodsdiscounted cash flow analysis

  discounted cash flow valuation

  Morgan Stanley uses long-term cash flows from 2026 to 2036 for DCF valuation, with a WACC of 7.4%, including a cost of equity of 8.6%, a risk-free rate of 2.1%, an equity risk premium of 4.5%, a China premium of 2.0%, an after-tax cost of debt of 4.5%, a target debt-to-capital ratio of 40%, and a terminal growth rate of 2%.

• forecastingMorgan Stanley ModelWare

  internal forecasting model

  The report states that unless otherwise specified, the relevant metrics are based on the Morgan Stanley ModelWare framework, and it presents forecasts for EPS, revenue, EBITDA, net profit, and valuation multiples from 2025 to 2028.

• consensusRefinitiv Estimates

  consensus comparison

  The report uses Refinitiv Estimates as the source of consensus data to observe the company's performance versus market expectations and the direction of next 12-month EPS expectations.

Asset mapping & comparison

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

• Ningbo Orient Wires & Cables Co Ltd (603606.SS)

  covered company and rating target

  Strengths

  1q26 revenue and net profit posted strong year-on-year growth, 4m26 backlog reached Rmb18.4bn, marine engineering business growth was outstanding, and improved inventory and contract liabilities support subsequent revenue recognition.

  Weaknesses

  Gross margin declined 3.2 percentage points quarter-on-quarter, which the report attributes mainly to an unfavorable product mix in medium- and low-voltage land cables; 1q26 recognized an impairment loss of Rmb36mn, versus a gain of Rmb31mn in 1q25.

  Comparison

  Relative to Morgan Stanley's coverage universe, the company is rated Overweight, the industry view is Attractive, and the target price implies 20% upside to the current price.

  Risks

  China offshore wind installations coming in below expectations, submarine cable ASP declining more than expected, and raw material costs rising rapidly.

Key data

• 1q26 net profitRmb372mnUp 32.3% year-on-year, mainly due to faster project revenue recognition versus 1q25.
• 1q26 revenueRmb2.9bnUp 34.3% year-on-year.
• 1q26 gross margin23.6%Up 3.2 percentage points year-on-year and down 3.2 percentage points quarter-on-quarter; the report believes the quarter-on-quarter decline came from an unfavorable land cable product mix.
• Revenue from submarine cables and high-voltage land cablesRmb1,491mnUp 24.7% year-on-year in 1q26.
• Revenue from marine equipment and engineeringRmb274mnUp 319.6% year-on-year in 1q26.
• Revenue from medium- and low-voltage land cablesRmb1,109mnUp 25.4% year-on-year in 1q26.
• 4m26 backlogRmb18.4bnIncluding Rmb10.4bn for submarine cables and high-voltage land cables, Rmb3.6bn for marine engineering, and Rmb4.4bn for medium- and low-voltage land cables.
• Inventory and contract liabilitiesInventory Rmb4.4bn; contract liabilities Rmb2.5bnUp 10% and 6% year-on-year, respectively; the report believes these can support subsequent growth.
• Target price and current priceTarget price Rmb73.32; April 21 closing price Rmb61.09Corresponding to 20% upside to the target price.

Impact & implications

The report's implication for the company's share price is broadly positive: earnings growth and backlog have strengthened growth visibility, while accelerated revenue recognition from submarine cable, marine engineering, and high-voltage cable related projects supports earnings delivery; however, short-term attention is still needed on product mix changes, quarter-on-quarter gross margin pressure, and raw material cost fluctuations.

Risks

• China offshore wind installations coming in below expectations.
• The decline in submarine cable average selling prices exceeds expectations.
• Raw material costs rise unexpectedly and rapidly.
• An unfavorable product mix in medium- and low-voltage land cables may continue to pressure gross margin.

What to watch

• Whether the pace of project revenue recognition continues to accelerate in subsequent quarters.
• Whether backlog for submarine cables and high-voltage land cables remains stable or resumes growth.
• Whether the high growth in the marine equipment and engineering business is sustainable.
• Whether gross margin can recover from product mix pressure.
• The speed at which inventory and contract liabilities convert into revenue and profit.
• Progress of China offshore wind installations and changes in submarine cable ASP.