Moons' Electric's 2Q26 revenue grew, but margins missed expectations; Goldman Sachs cuts earnings forecasts and target price while reiterating Sell

Overview

This report assesses Moons' Electric's 2Q26 results, growth across application areas, margin pressure, and prospects for its humanoid robot business. Goldman Sachs recognizes the company's capabilities in motors and drives, coreless motors, and motion control, but believes near-term earnings pressure from expenses, raw materials, foreign exchange rates, and investment in new businesses remains pronounced. It therefore lowers its forecasts and target price while reiterating its Sell rating.

Core views

Moons' Electric reported its 2Q26 results after the market close on August 25, 2026: revenue, gross profit, EBIT, and net profit were Rmb867mn, Rmb331mn, Rmb33mn, and Rmb23mn, respectively, increasing 21%, 38%, 131%, and 18% year over year, but coming in 7%, 5%, 37%, and 59% below Goldman Sachs' expectations, respectively. 2Q26 gross margin, operating margin, and net margin were 38%, 4%, and 3%, respectively, representing year-over-year changes of up 5 percentage points, up 2 percentage points, and flat. Relative to Goldman Sachs' expectations, they were 1 percentage point higher, 2 percentage points lower, and 3 percentage points lower, respectively. Thus, gross margin was slightly better than expected, but higher selling and administrative expenses and foreign exchange losses caused operating and net margins to miss expectations significantly. By application, 1H26 revenue from industrial automation, automotive and autonomous driving, robotics, and medical within the motors and drives segment grew 27%, 59%, 58%, and 11% year over year, respectively. Industrial automation growth was primarily driven by semiconductor equipment and 3C manufacturing equipment, whose revenue increased 78% and 67% year over year, respectively, while photovoltaic equipment grew at a relatively slower rate of 15%. The robotics business mainly benefited from accelerated progress in humanoid robots, and the company has established mass-supply capabilities for dexterous hands, upper-body joint modules, and wheeled chassis modules. Meanwhile, the power supply and lighting control, equipment monitoring, and distribution businesses declined 17%, 18%, and 11% year over year, respectively, which the report attributes to intensifying price competition and slower downstream capital expenditure. Profitability showed a divergence between improving gross margin and pressured net profit. 1H26 consolidated gross margin rose 2.7 percentage points year over year to 37.7%, with 2Q26 reaching 38%, up 5 percentage points year over year, mainly driven by a higher share of value-added products and economies of scale. However, rising raw material costs, higher selling and administrative expenses, and foreign exchange headwinds offset the gross margin improvement, with incremental foreign exchange losses of 15mn in 1H26. The report therefore believes the scope for near-term margin improvement is limited. Although management is advancing cost reductions, supply chain optimization, and tighter expense controls, these measures are not yet sufficient to eliminate current pressures. The long-term opportunity is concentrated in humanoid robots. Goldman Sachs believes Moons' Electric, as a leading domestic provider of motor and drive solutions, is positioned to become an important participant in the supply chain for core humanoid robot components, supported by its leading position in coreless motors and broader motion-control capabilities. In 2025, the company's revenue was already supported by solid growth in end markets such as factory automation, automotive, robotics, and 3D printing, while key products including servo systems, coreless motors, and automation systems also maintained strong growth. However, Goldman Sachs remains cautious about the scale and profitability of the opportunity: the adoption of coreless motors in dexterous hands may be lower than previously expected, and the relevant technology roadmap is still evolving; competition in the coreless motor supply chain is intensifying; and R&D and marketing expenses, raw material inflation, and early-stage investment in new businesses that lack economies of scale may continue to pressure margins. Based on the weaker-than-expected 2Q26 results and greater drag from operating expenses and foreign exchange rates, Goldman Sachs lowered its 2026E-30E revenue forecasts by 3%-6% and its net profit forecasts for the same period by 10%-25%. The 12-month target price was reduced from Rmb39.6 to Rmb35.5, still based on a 37x 2030E P/E multiple and discounted to 2027E using a 9.5% cost of equity. Even after incorporating the growth potential of humanoid robots and the core motors and drives business, the report still believes that near-term margin pressure, execution uncertainty, and elevated valuation make the company's risk-reward less attractive than other opportunities within its coverage universe, and therefore reiterates its Sell rating.

Analysis framework

Goldman Sachs first compares 2Q26 revenue, gross profit, EBIT, net profit, and margins with the prior-year period and its own forecasts to identify performance variances. It then breaks down the sources of growth across industrial automation, automotive and autonomous driving, robotics, medical, and traditional businesses, explaining margin changes through product mix, economies of scale, raw materials, expenses, and foreign exchange rates. Finally, the report revises its 2026E-30E forecasts based on humanoid robot supply-chain opportunities, technology adoption, competition, and execution risks, and updates the target price using a forward P/E multiple and cost-of-equity discounting methodology.

Methodology notes

• Valuation MethodologyP/E and PEG Valuation

  2030E P/E valuation discounted to 2027E

  The report values the company at a 37x 2030E P/E multiple and then discounts the value to 2027E using a 9.5% cost of equity, deriving a 12-month target price of Rmb35.5.

• Industry/Sector Analysis FrameworkUpstream, Midstream, and Downstream Industry-Chain Transmission

  Transmission analysis of the humanoid robot and coreless motor supply chain

  Starting from technological progress in humanoid robots and the adoption rate of dexterous hands, the report considers competition in the coreless motor supply chain, the company's mass-production capabilities, and new-business costs to assess whether end demand can translate into revenue and profit.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Margin analysis of product mix and economies of scale versus expense drag

  The report attributes gross margin improvement to a higher share of value-added products and economies of scale, while also examining how selling and administrative expenses, R&D and marketing investment, raw materials, and foreign exchange losses offset operating profit and net profit.

• (Out-of-Vocabulary Method)

  Variance analysis of actual results versus Goldman Sachs' expectations and earnings forecast revisions

  The report compares actual revenue, profit, and margins with GSe item by item, then adjusts its 2026E-30E revenue and net profit forecasts based on the variances and its expense and foreign exchange assumptions.

Asset mapping & comparison

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

• Moons' Electric (603728.SS)

  The subject of the report, with businesses related to industrial automation, automotive and autonomous driving, humanoid robots, medical, and other motor and drive applications.

  Strengths

  A leading domestic provider of motor and drive solutions, with advantages in coreless motor products and broader motion-control capabilities, as well as mass-supply capabilities for dexterous hands, upper-body joint modules, and wheeled chassis modules.

  Weaknesses

  Recent earnings have been pressured by selling and administrative expenses, R&D and marketing investment, raw material inflation, foreign exchange losses, and insufficient economies of scale in new businesses.

  Comparison

  Goldman Sachs believes its near-term risk-reward is less attractive than other opportunities within its coverage universe.

  Risks

  Uncertainty remains regarding the humanoid robot technology roadmap and coreless motor adoption rates, while supply-chain competition is intensifying and pressure remains on margin improvement and new-business execution.

Key data

• 2Q26 RevenueRmb867mnUp 21% year over year, 7% below GSe
• 2Q26 Gross ProfitRmb331mnUp 38% year over year, 5% below GSe
• 2Q26 EBITRmb33mnUp 131% year over year, 37% below GSe
• 2Q26 Net ProfitRmb23mnUp 18% year over year, 59% below GSe
• 2Q26 Gross Margin38%Up 5 percentage points year over year, 1 percentage point above GSe
• 2Q26 Operating Margin4%Up 2 percentage points year over year, 2 percentage points below GSe
• 2Q26 Net Margin3%Flat year over year, 3 percentage points below GSe
• 1H26 Consolidated Gross Margin37.7%Up 2.7 percentage points year over year
• 1H26 Application Revenue GrowthIndustrial automation +27%; automotive and autonomous driving +59%; robotics +58%; medical +11%All changes are year over year
• 1H26 Industrial Automation Subsegment GrowthSemiconductor equipment +78%; 3C manufacturing equipment +67%; photovoltaic equipment +15%All changes are year over year
• 1H26 Traditional Business GrowthPower supply and lighting control -17%; equipment monitoring -18%; distribution business -11%All changes are year over year
• 1H26 Incremental Foreign Exchange Losses15mnForeign exchange headwinds weighed on profit
• 2026E-30E Forecast RevisionsRevenue cut by 3%-6%; net profit cut by 10%-25%Reflects the 2Q26 miss and greater drag from operating expenses and foreign exchange rates
• 12-Month Target PriceRmb35.5Lowered from Rmb39.6
• Valuation Parameters2030E P/E 37x; CoE 9.5%Discounted to 2027E using the cost of equity

Impact & implications

The report believes demand from industrial automation, automotive and autonomous driving, and humanoid robots can continue to support revenue growth and improve product mix, but expenses, raw materials, foreign exchange rates, and a lack of economies of scale in early-stage businesses mean growth has not yet translated fully into net profit. Earnings forecasts and the target price were therefore lowered, while the humanoid robot business will need to demonstrate stronger progress in adoption, market share, competitiveness, and profitability to change the current cautious view.

Risks

• Humanoid robot development progressing faster than Goldman Sachs expects could represent upside risk to the Sell thesis.
• A higher-than-expected adoption rate of coreless motors in dexterous hands or a higher overall market share for the company could drive stronger growth.
• Stronger-than-expected product competitiveness and market-share gains in motors and drives could improve the current outlook.
• The humanoid robot technology roadmap is still evolving, and the adoption of coreless motors in dexterous hands may be lower than previously expected.
• Intensifying competition in the coreless motor supply chain could constrain market share and profitability.
• Rising R&D, marketing, selling, and administrative expenses, raw material inflation, foreign exchange headwinds, and early-stage investment in new businesses may continue to pressure margins.