FY25 results missed expectations, but Goldman Sachs maintains a Buy rating on AVIC Jonhon and expects revenue and margins to bottom out and recover in 2026E.

Overview

Goldman Sachs released this note after AVIC Jonhon's FY25/4Q25 results and the April 1 earnings call. The company's FY25 results were below Goldman Sachs expectations, mainly due to a larger-than-expected decline in the defense business and the drag from a lower mix of the higher-margin defense business. The report's core view is that the defense business will stop declining in 2026E, gross margin will recover on material substitution and efficiency improvements, and non-defense businesses such as EVs, liquid cooling, solar energy storage, medical, railways, data centers, and potentially humanoid robots will drive medium- to long-term growth.

Core views

Goldman Sachs maintains a Buy rating, believing FY25 marks the trough in profitability pressure and that revenue and margins are likely to bottom out and recover in 2026E. Although the defense business fell to about 42% of company revenue in 2025, based on 2025 orders and roughly a one-year conversion cycle, it should be at least flat or slightly higher in 2026E. Non-defense businesses are growing faster, with the EV business at about Rmb5.3bn in 2025 and domestic high-voltage market share above 35%; the liquid cooling business was about Rmb1bn and continues to hold a leading share in China.

Analysis framework

The report combines actual FY25/4Q25 results versus GSe, management guidance from the earnings call, segment revenue trends, gross margin drivers, raw material cost impacts, order conversion cycles, and end-market demand to revise 2026E-2030E revenue, EPS, and valuation, and uses a P/E valuation method to derive the 12-month target price.

Methodology notes

• Valuation methodsTarget price methodology

  P/E valuation

  The 12-month target price of Rmb38.2 is based on 22x 2027E P/E; the previous target price of Rmb34.8 used a 2026E base.

• Forecast revisionEarnings forecast revision

  2026E-2030E EPS cuts

  Goldman Sachs cut 2026E-2030E EPS by 9%-13% to reflect FY25 results below expectations and margin pressure.

• Investment frameworkGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile

  Goldman Sachs disclosed that its factor profile compares standardized percentiles across sales, EBITDA, and EPS growth, ROE, ROCE, CROCI, and valuation metrics such as P/E, P/B, and EV/EBITDA.

Asset mapping & comparison

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

• AVIC Jonhon (002179.SZ)

  The covered company; the report maintains a Buy rating and raises the target price.

  Strengths

  The defense business has order visibility, EV high-voltage connector market share exceeds 35%, the liquid cooling business leads in China market share, and non-defense businesses target multiple high-growth end markets.

  Weaknesses

  FY25 net profit declined 36% YoY, gross margin fell 7pp YoY, raw material costs such as gold, copper, and silver increased, and defense business revenue fell 23% YoY in 2025.

  Comparison

  Versus FY25, the report expects revenue and gross margin to bottom out and recover in 2026E; non-defense business revenue contribution is expected to rise from 58% to 69% in 2030E.

  Risks

  Defense and aerospace spending below expectations, rising pricing pressure in defense and aerospace, and intensifying competition among domestic and global connector manufacturers.

• Defense business

  The company's traditional high-margin business, which dragged overall margins in FY25.

  Strengths

  2025 orders and a roughly one-year conversion cycle provide visibility for recovery in 2026E; during the 15th Five-Year Plan period, the company still expects 5%-10% revenue growth.

  Weaknesses

  2025 revenue was about Rmb9bn, down 23% YoY, and its share fell to about 42%.

  Comparison

  The report expects it to be at least flat or slightly higher in 2026E, a clear improvement from 2025.

  Risks

  Defense and aerospace budgets, pricing pressure, and delivery pace could fall short of expectations.

• Non-defense business

  A source of medium- to long-term growth and revenue diversification.

  Strengths

  Driven by EVs, liquid cooling, solar energy storage, medical, railways, data centers, and potentially humanoid robots, with expected five-year CAGR of about 18%.

  Weaknesses

  Overall gross margin is lower than the defense business, and a higher revenue mix may pressure the company's consolidated gross margin in the short term.

  Comparison

  Revenue contribution is expected to rise from 58% in 2025 to 69% in 2030E.

  Risks

  Slowing end-market demand, intensifying competition, or slower-than-expected commercialization of new applications.

Key data

• FY25 revenue/gross profit/EBIT/net profitRmb21,386mn / Rmb6,243mn / Rmb2,332mn / Rmb2,162mnUp 3% / down 18% / down 29% / down 36% YoY, versus GSe of -4% / -7% / -9% / -9%.
• FY25 GPM/OPM/NPM29% / 11% / 10%Down 7pp / 5pp / 6pp YoY; versus GSe of -1pp / +1pp / -1pp.
• Defense business 2025 revenueabout Rmb9bnAbout 42% of company revenue, down about 23% YoY; management expects 2026E to be at least flat or slightly higher.
• 2026E gross margin improvement targetimprove by about 2pp YoYDriven by a bottoming out in the defense business, improved gross margin in non-defense businesses, material substitution, and efficiency gains.
• Non-defense business revenue contribution58% in 2025, expected 69% in 2030EExpected five-year CAGR of about 18%.
• Liquid cooling business revenueabout Rmb1bn2025 scale, mainly providing connectors and cold plate components, and maintaining a leading share in the Chinese market.
• EV business revenueabout Rmb5.3bnAchieved double-digit percentage YoY growth in 2025, with domestic high-voltage market share above 35%.
• Industrial and medical business revenueRmb2bn+Includes businesses such as solar PV, energy storage, medical, power, railways, and multi-axis torque sensors.
• Target priceRmb38.2Prior Rmb34.8; based on 22x 2027E P/E.

Impact & implications

If defense orders convert on schedule and drive revenue to bottom out, while non-defense businesses continue expanding, AVIC Jonhon's revenue mix will become more balanced and margins are also likely to recover from the 2025 trough. From an investment perspective, Goldman Sachs believes the short-term earnings disappointment is already partly reflected, but the 2026E recovery, growth in new non-defense tracks, and the target price increase support the Buy view.

Risks

• Defense and aerospace spending below expectations.
• Rising pricing pressure in defense and aerospace.
• Intensifying competition among domestic and global connector manufacturers.
• Inflation in raw material costs such as gold, copper, and silver may continue to pressure gross margins.
• Material substitution in the defense business requires lengthy reliability and durability testing, so progress may be slower than expected.

What to watch

• Whether the defense business achieves at least flat or slightly higher revenue in 2026E, and whether quarterly sequential improvement continues.
• Whether gross margin improves by about 2pp YoY as Goldman Sachs expects.
• Whether the EV high-voltage connector business can maintain domestic market share above 35%.
• Orders and revenue ramp-up for liquid cooling connectors, cold plate components, and manifold components.
• The pace at which non-defense business revenue contribution moves toward the 69% target in 2030E.
• Prices of gold, copper, and silver, and the company's progress on material substitution.