SG Micro 1Q26 Operating Profit Beats; Target Price Raised to RMB 96.1
AI summary card
SG Micro 1Q26 Operating Profit Beats; Target Price Raised to RMB 96.1
Goldman Sachs maintains Neutral rating on SG Micro, bullish on signal chain product expansion in AI and networking, but valuation upside limited.
- 1Q26 revenue RMB 1.098 billion, +39% YoY, 6% above expectations
- Operating profit RMB 165 million, beat by 22%, effective cost control
- Net profit RMB 124 million, 24% below expectations, due to higher inventory provisions
- Target price raised to RMB 96.1, based on 43.2x 2027E P/E
- Product portfolio expanding to AI servers and networking, with 200+ applicable products
Report interpretation
Overview
Goldman Sachs published a research report on SG Micro (300661.SZ), noting that the company's Q1 2026 operating profit beat expectations, mainly due to effective cost control. Although net profit slightly missed expectations due to inventory provisions, the institution is bullish on the company's expansion of signal chain and power management IC (PMIC) products in AI and networking fields. Maintains Neutral rating, target price raised to RMB 96.1.
Core views
On performance, 1Q26 revenue reached RMB 1.098 billion, up 39% YoY, 6% above Goldman Sachs' expectations. Gross margin was 51.6%, in line with expectations and long-term targets. Operating profit was RMB 165 million, beating expectations by 22%, mainly due to effective operating expense control. Net profit was RMB 124 million, 24% below expectations, mainly due to higher-than-expected inventory provisions. As the product portfolio expands, the company needs to increase safety stock levels, which is viewed as normal and manageable. On product expansion, the company continues R&D to expand its product portfolio, with over 6,800 available products by end of 2025 (vs. 5,900+ at end of 2024). For AI networking demand, there are already 200+ products applicable for server use cases, with more under development. Optical transceiver application products are abundant. The institution is optimistic about the recovery trend in global analog IC demand and SG Micro's expansion into broader markets such as automotive-grade analog ICs, server PMICs, sensors, and battery management ICs (BMICs). On valuation and rating, the target price is raised to RMB 96.1 (from RMB 84.0), based on 43.2x 2027E P/E (from 37.7x). The P/E multiple increase reflects more positive sentiment on global analog IC demand recovery, and the new target multiple is within the company's historical trading P/E range. Maintains Neutral rating due to lower upside compared to the China semiconductor coverage universe.
Analysis framework
The institution uses a P/E-EPS growth correlation method to determine the target valuation multiple. Fundamental analysis combines industry supply-demand recovery trends (global analog IC demand) with company-specific product expansion strategies (AI, servers, automotive-grade). Target multiples are set by comparing peer valuation and growth fit (P/E-EPS growth correlation), and the valuation base year is rolled to 2027. At the same time, operating profit and net profit are distinguished, and the impact of inventory provisions on short-term earnings quality is analyzed to assess the relationship between long-term growth potential and short-term financial volatility.
Methodology notes
Target P/E based on industry P/E-EPS growth correlation
The institution determines a reasonable target valuation multiple by correlating industry P/E with EPS growth, reflecting the market's pricing consensus on that growth level.
Global analog IC demand recovery
Analyzes the recovery of overall industry demand as a macro backdrop for judging the company's revenue growth and valuation sentiment improvement.
Distinguish operating profit from net profit, analyze impact of inventory provisions
By comparing operating profit (reflecting operational efficiency) with net profit (affected by non-operational factors like provisions), assesses the true change in the company's core profitability.
Key data
- 1Q26 RevenueRMB 1.098 billion+39% YoY, 6% above expectations
- 1Q26 Operating ProfitRMB 165 million+257% YoY, 22% above expectations
- 1Q26 Net ProfitRMB 124 million+107% YoY, 24% below expectations
- Target PriceRMB 96.1Previously RMB 84.0, based on 43.2x 2027E P/E
- 2026E EPS ForecastRMB 1.42New forecast, previously RMB 1.56
- Product Count6,800+Available products by end of 2025, vs. 5,900+ at end of 2024
Impact & implications
The report suggests that the company is in a product expansion phase, requiring higher safety stock levels, leading to increased provisions, but this is viewed as normal and manageable. The institution is bullish on long-term expansion into areas such as automotive-grade analog ICs, server PMICs, and sensors, which helps build a diversified platform to serve different end markets. The P/E multiple upgrade reflects positive market sentiment on global analog IC demand recovery.
Risks
- Stronger or weaker than expected smartphone and consumer electronics demand
- Faster or slower than expected progress in new product launches and new market expansion
- More or less intense competition from domestic peers
What to watch
- Changes in inventory provision levels
- Progress of new product launches (especially AI server-related)
- Sustainability of global analog IC demand recovery