Kstar: Taiwanese Client Orders Expected; New Product Rollout Accelerating

Overview

This report updates the business outlook for Kstar (002518.SZ) based on management discussions during UBS’s 2026 Asia Industrial Conference (AIC). The core view is that Kstar is likely to secure UPS ODM orders from new Taiwanese clients in June–July, and that development of new products—such as 800V high-voltage DC (HVDC) power supplies and solid-state transformers (SST)—is progressing well. While early HVDC demand may be limited, UPS remains the key near-term profit driver. UBS maintains its 'Buy' rating with a target price of RMB 60.10, viewing Kstar as one of the few companies in the AI data center power equipment space capable of delivering robust earnings growth in 2026–27.

Core views

Order and Revenue Growth Expectations: Management expects meaningful growth in UPS ODM orders driven by rising demand from existing and new clients. Another Taiwanese hyperscaler client is expected to finalize a power supply ODM order in June–July. Under this collaboration model, Kstar focuses on grey-space power equipment ODM, while the client handles white-space equipment production in-house. Management estimates the product value for this client at USD 0.8–1.0 per watt, covering UPS, backup power, and long-duration battery energy storage systems (BESS). Including potential large ODM orders, revenue guidance implies YoY growth exceeding 30%; even excluding such orders, growth would still reach at least 20%. Profitability and Cost Control: Despite rising commodity costs, management indicates that UPS ODM gross margins remain above 35%, demonstrating strong cost-pass-through capability and earnings resilience. New Product Development Progress: The company has achieved breakthroughs in next-generation technologies. The 800V DC (HVDC) power supply prototype was launched in May and is now in customer validation. The launch was delayed by one quarter due to continuous client requirement changes. Although HVDC’s high standardization suits an ODM model, management anticipates early overseas clients may prefer in-house production, meaning large-scale manufacturing orders will emerge later; thus, UPS remains the core near-term profit driver. Additionally, modular solid-state transformers (SST) are expected as early as end-2026, with integrated SST units slated for 2027. Given high technical barriers, commercial-scale production is expected to take at least two years. Kstar’s competitive edge lies in its expertise in power electronics and deep understanding of data center power infrastructure, enabling it to focus on modular SST development and differentiate itself from traditional transformer manufacturers.

Analysis framework

UBS employs a hybrid top-down and bottom-up analytical framework. First, insights from industry conferences (UBS AIC 2026) provide direct management commentary on order timing, new product validation progress, and competitive dynamics—key inputs for identifying near-term catalysts. Second, the business is segmented into mature (UPS ODM) and emerging (HVDC/SST) segments to clarify contribution timelines and growth drivers: near-term upside hinges on UPS order execution, while long-term value stems from new technology adoption. Finally, a DCF valuation model translates these qualitative developments into concrete financial forecasts (e.g., revenue growth, gross margin), underpinning the target price and rating recommendation. This approach emphasizes dual support from event-driven catalysts (order wins) and technological evolution (product validation).

Methodology notes

• Valuation MethodDCF (Discounted Cash Flow)

  DCF (Discounted Cash Flow)

  UBS uses a DCF model to derive the target price, which estimates intrinsic value by forecasting future free cash flows and discounting them to present value—suitable for manufacturing firms with stable growth expectations.

• Industry/Value Chain FrameworkUpstream-Midstream-Downstream Value Chain Transmission

  Grey-Space vs. White-Space Power Equipment Division

  The report notes Kstar handles 'grey-space' power ODM while clients produce 'white-space' equipment themselves—a reflection of value allocation and specialization across the data center supply chain, clarifying Kstar’s market positioning and client stickiness.

• Competitive Strategy FrameworkMoat / competitive advantage

  Technical Barriers and Differentiated Competition

  Kstar’s strength in SST lies in its power electronics expertise and deep understanding of data center infrastructure, enabling differentiation from traditional transformer makers—a key element in building a sustainable competitive moat.

Asset mapping & comparison

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

• Kstar (002518.SZ)

  Beneficiary: Directly secures UPS ODM orders from Taiwanese clients; HVDC/SST new products open long-term growth avenues.

  Strengths

  High UPS ODM gross margin (>35%), deep technical expertise, and strong client relationships.

  Weaknesses

  Early HVDC demand may be limited; SST commercial-scale production requires at least two years.

  Comparison

  Among AI data center power equipment peers, Kstar offers higher earnings growth visibility for 2026–27.

  Risks

  Slower-than-expected IDC capacity expansion, delays in hyperscaler supply chain qualification, slower BESS shipment recovery, and market share loss to new entrants.

Key data

• 12-Month Target PriceRMB 60.10Based on DCF model
• Current Share PriceRMB 57.47As of May 26, 2026
• UPS ODM Gross Margin>35%Per management guidance; limited impact from commodity costs
• Potential Taiwanese Client Product ASPUSD 0.8–1.0 per wattIncludes UPS, backup power, and long-duration BESS
• Revenue Growth Guidance>30% (with potential large order) / ≥20% (without)YoY growth, contingent on June–July order confirmation
• 2026E EPS (UBS Forecast)RMB 1.55Diluted earnings per share
• 2027E EPS (UBS Forecast)RMB 2.14Diluted earnings per share

Impact & implications

For Kstar, securing UPS ODM orders from Taiwanese clients in June–July represents a critical near-term stock catalyst. Successful contract signing would validate its overseas client expansion strategy and boost revenue expectations. In the long run, gradual commercialization of HVDC and SST products will enhance Kstar’s market share and pricing power in the high-end AI data center power segment. UBS believes Kstar, supported by strong UPS ODM orders, stands out as one of the few players in this space positioned to deliver reliable earnings growth in 2026–27.

Risks

• Slower-than-expected IDC capacity expansion, dampening overall data center product growth
• Delays in qualifying for overseas hyperscaler supply chains due to lengthy customer validation cycles
• Slower-than-expected recovery in BESS shipment volumes
• Market share erosion due to competition from new entrants

What to watch

• Confirmation of ODM orders from major Taiwanese clients in June–July
• Customer validation progress and follow-on orders for 800V HVDC products
• Development timeline and launch schedule for modular SST (expected by end-2026)
• Progress in gaining access to overseas hyperscaler supply chains