1Q Net Profit Misses Expectations; 2Q Revenue Guidance Shows Sequential Recovery

Overview

Goldman Sachs released an earnings commentary on Will Semiconductor's 1Q26 results, noting that while revenue met expectations, net profit missed due to non-operating factors. The company guided for a sequential revenue recovery in 2Q, though the smartphone CIS business continues to face near-term demand challenges. The report maintains a Neutral rating with a target price of 116.9 yuan, viewing the company as transitioning towards diversification into innovative businesses, albeit with near-term earnings pressure.

Core views

Regarding 1Q26 performance, the company achieved revenue of 6.414 billion yuan, down 1% year-over-year (YoY) and 9% quarter-over-quarter (QoQ), generally meeting consensus expectations from Goldman Sachs and the market. Among these, the distribution business grew 39% YoY, while the semiconductor design business declined 9% YoY. Gross margin fell to 29.4% (from 31.3% in 4Q25), primarily due to an increased share of the lower-margin distribution business. Net profit was 503 million yuan, down 42% YoY, missing Goldman Sachs' expectations by 28% and market consensus by 33%, mainly due to non-operating factors such as changes in the fair value of financial assets. Regarding 2Q26 guidance, the company expects revenue of 7.2-7.5 billion yuan, representing a YoY change of -4.5% to +0.8% and a QoQ growth of 11.5% to 17.6%; this guidance is below Goldman Sachs' prior expectations. Gross margin guidance is 28.7%-29.6%. Management noted that rising storage costs and soft market demand pose near-term challenges for the smartphone CIS business, but the company is committed to expanding high-end smartphone CIS solutions and innovative products (such as AI/AR glasses and action cameras). Regarding earnings forecasts and valuation, based on 1Q26 results and 2Q guidance, Goldman Sachs lowered its 2026-28 earnings forecasts by 13%/2%/3%, primarily reflecting lowered smartphone CIS revenue and the drag on gross margin from the increased share of the distribution business. Valuation uses the 2027E P/E method with an unchanged target multiple of 19.8x, implying a 12-month target price of 116.9 yuan (previously 119.5 yuan). This multiple is derived from the correlation between peers' 2027E P/E and average EPS growth for 2027-28, reflecting slowing earnings growth.

Analysis framework

The report adopts a bottom-up earnings analysis framework, first breaking down revenue structure (distribution vs. semiconductor design) and the reasons for gross margin changes, then analyzing the impact of non-operating items on net profit. For valuation, it employs a relative valuation method (P/E), comparing the company's 2027E P/E ratio with global peers and historical trading ranges, adjusting the target price in conjunction with earnings growth rates. The analytical logic emphasizes how changes in business structure (increased share of low-margin distribution) drag on overall profitability, as well as the supporting role of innovative businesses for long-term growth.

Methodology notes

• Valuation MethodPE/PEG valuation

  Valuation method based on 2027E P/E and peer comparison

  The report uses the 2027 expected Price-to-Earnings (P/E) ratio as a valuation anchor and references the correlation between peer P/E ratios and EPS growth rates to determine the target multiple. This is a common relative valuation method for growth technology stocks, aiming to link valuation to earnings growth potential.

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Distinguishing between operating profit and non-operating gains/losses

  When analyzing the miss in net profit expectations, the report explicitly points out the impact of non-operating factors (non-OP) such as changes in the fair value of financial assets. This helps investors understand the difference between core business profitability and book net profit, thereby assessing earnings quality.

Asset mapping & comparison

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

• Will Semiconductor (603501.SS)

  Analysis Target

  Strengths

  Diversified expansion into innovative businesses (e.g., AI/AR glasses)

  Weaknesses

  Near-term soft demand in smartphone CIS business; increased share of distribution business dragging down gross margin

  Risks

  Slower-than-expected expansion of new products, slowing growth in automotive CIS, impact of trade tensions

Key data

• 1Q26 Revenue6.414 billion yuanYoY -1%, QoQ -9%, met expectations
• 1Q26 Net Profit503 million yuanYoY -42%, missed expectations by 28%
• 1Q26 Gross Margin29.4%Down from 31.3% in 4Q25
• 2Q26 Revenue Guidance7.2-7.5 billion yuanQoQ +11.5%~17.6%
• Target Price116.9 yuanBased on 19.8x 2027E P/E
• 2026-28E Earnings Forecast Adjustment-13%/-2%/-3%Primarily due to lowered smartphone CIS revenue and gross margin pressure

Impact & implications

The report believes that near-term softness in smartphone CIS demand and rising storage costs will pressure the company's performance, leading to lowered earnings forecasts. However, the company's diversification into innovative businesses such as AI/AR glasses and action cameras is expected to provide new growth drivers in the long term. The valuation multiple remains within its historical trading range, reflecting market pricing for slowing growth.

Risks

• Faster/slower-than-expected expansion of new smartphone CIS products and improvement in product mix
• Faster/slower-than-expected growth in automotive CIS
• Stronger/weaker-than-expected demand for smartphones in China
• Faster/slower-than-expected production ramp-up for new automotive IC products
• Potential impact of trade tensions

What to watch

• Whether 2Q26 revenue recovers sequentially as expected
• Recovery status of smartphone CIS demand and progress in high-end solutions
• Expansion progress of innovative businesses (e.g., AI/AR glasses)
• Changes in revenue structure between distribution and semiconductor design businesses