DRAM upcycle continues, ChangXin Technology's second-quarter results may exceed guidance, and CSP long-term agreements become key to earnings visibility

Overview

This is ChangXin Technology's first major earnings test since its July listing. Morgan Stanley expects rising DRAM prices and continued capacity expansion to drive second-quarter and first-half 2026 results above company guidance, and believes Chinese AI server demand, domestic memory substitution, and long-term supply agreements could support longer-term growth and earnings visibility.

Core views

Morgan Stanley views the second-quarter 2026 results as ChangXin Technology's first major test since its July listing. The report believes the current DRAM upcycle is continuing, with price increases and capacity expansion jointly accelerating performance. The company's guidance for first-half 2026 revenue and net profit attributable to shareholders is Rmb11.0bn to Rmb12.0bn and Rmb5.0bn to Rmb5.7bn, respectively, while Morgan Stanley expects approximately Rmb13.6bn and Rmb6.5bn. Its above-guidance view is based primarily on two assumptions: stronger-than-expected capacity expansion and further increases in DRAM average selling prices. The AlphaSignals framework also identifies second-quarter revenue, gross margin, and second-half guidance as key metrics, judging that an upside surprise is more likely and could lead to a modest upward revision in consensus EPS estimates over the next 12 months. Growth momentum is expected to continue into the third quarter of 2026. Morgan Stanley forecasts third-quarter revenue growth of 35% Q/Q and 590% Y/Y, with gross margin continuing to rise to 77%; meanwhile, DRAM contract prices are trending toward a 15% Q/Q increase. The report also expects ChangXin Technology's revenue CAGR to reach 140% from 2025 to 2028 and operating margin to remain at 70% to 72% from 2026 to 2028. This earnings trajectory depends on simultaneous volume and price growth: pricing is supported by global DRAM supply growth continuing to lag demand, while volume growth comes from the company's ongoing capacity expansion. Capacity is the key variable in assessing the sustainability of growth. The report expects ChangXin Technology's total DRAM capacity to increase from 180k wafers per month in 2025 to 300k wafers per month in 2026, then rise by approximately 100k wafers per month each year to reach 800k wafers per month in 2031. Therefore, whether management further accelerates capacity expansion during the current upcycle, the construction progress reflected in first-half 2026 capital expenditure, and how new capacity is allocated between conventional DRAM and HBM will all affect the pace of revenue realization and the product mix. Against the backdrop of a global memory shortage, whether the company is considering selling DRAM to overseas brands is another important capacity-allocation issue raised in the report. Morgan Stanley believes the structural supply-demand gap in the Chinese market provides ChangXin Technology with growth potential independent of the short-term pricing cycle. Global DRAM supply has already fallen behind demand, while domestic Chinese supply constraints are even more pronounced. At the same time, expansion of China's domestic AI server market, the use of domestic CoWoS capacity to manufacture domestic AI GPUs, and these chips' demand for domestic HBM and LPDDR will increase demand for domestically produced memory. The report estimates that China's potential CPU market will reach US$42bn by 2030 and believes this will drive substantial DRAM demand. Even if memory prices enter a downcycle in the future, DRAM's strategic importance in China may lead ChangXin Technology to continue expanding capacity. Long-term agreements with Chinese cloud service providers are another key indicator for improving earnings visibility beyond the cycle. Citing Reuters, the report states that ChangXin Technology may have signed a five-year agreement worth more than US$7bn with ByteDance and a long-term supply agreement worth more than Rmb20bn with Tencent, but emphasizes that the company has not confirmed these reports. If management confirms the agreements or provides further details on their terms, this would help assess cloud-server demand beyond the current DRAM upcycle and improve revenue and earnings visibility for the coming years. Any second-half revenue guidance would have similar informational value. On valuation, Morgan Stanley maintains its Overweight rating and Rmb88 target price, implying 57% upside from the August 26, 2026 closing price of Rmb56.10. The target price is based on a residual income model, with key assumptions including a 9.9% cost of equity, a beta of 1.2, a 2.0% risk-free rate, a 6.6% risk premium, a 51% payout ratio, an 11.0% medium-term growth rate, and a 3% perpetual growth rate. The Rmb88 target price corresponds to 18.5x 2027e P/E, significantly above the 4.4x for global peers; Morgan Stanley believes this premium is supported by faster growth, continued capacity expansion, the domestic substitution trend, and exposure to AI memory.

Analysis framework

The report first compares the company's first-half guidance with Morgan Stanley's forecasts to assess the potential for a second-quarter earnings surprise. It then breaks revenue growth into two drivers—capacity expansion and higher DRAM selling prices—and evaluates the sustainability of growth through global and domestic Chinese supply and demand, AI servers, and demand for domestically produced memory. The report subsequently assesses medium- to long-term earnings visibility through capital expenditure, HBM capacity allocation, and long-term agreements with cloud service providers, before using a residual income model to determine the target price and cross-checking it against 2027 P/E and global peer valuations.

Methodology notes

• Valuation MethodRIM Residual Income Model

  Residual Income Model

  This model values the company based on its book value and future earnings in excess of the cost of equity. The report uses assumptions including a 9.9% cost of equity, a 51% payout ratio, an 11.0% medium-term growth rate, and a 3% perpetual growth rate to derive a base-case target price of Rmb88.

• Valuation MethodPE/PEG valuation

  Forward P/E and Global Peer Comparison

  The report translates the Rmb88 target price into 18.5x 2027e P/E and compares it with the 4.4x level for global peers, explaining the valuation premium through ChangXin Technology's stronger growth prospects.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Analysis of Global and Chinese DRAM Supply-Demand Gaps

  By comparing DRAM supply growth with demand growth, the report concludes that supply remains tight and notes that domestic Chinese supply constraints are more pronounced, giving ChangXin Technology substantial room for capacity expansion and domestic substitution.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Volume and Price Drivers from Capacity and Average Selling Prices

  Morgan Stanley decomposes earnings growth into sales-volume gains from capacity expansion and higher DRAM average selling prices, which together support its view that first-half results will exceed guidance and that third-quarter revenue and gross margin will continue to grow.

• Event Strategy and Behavioral FinanceEvent-driven analysis

  Earnings Preview and Key-Metric Surprise Analysis

  Focusing on the second-quarter results release, the report compares company guidance, institutional forecasts, and market consensus, while tracking the potential impact of revenue, gross margin, capital expenditure, second-half guidance, and long-term agreements on EPS expectations over the next 12 months.

Asset mapping & comparison

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

• ChangXin Technology (688825.SH)

  Tight domestic Chinese DRAM supply, AI server demand, the domestic substitution trend, higher DRAM prices, and continued capacity expansion collectively constitute the growth drivers described in the report.

  Strengths

  Rapid capacity expansion and exposure to China's domestic AI server market and memory localization; the report forecasts a 140% revenue CAGR from 2025 to 2028.

  Weaknesses

  The target price corresponds to 18.5x 2027e P/E, significantly above the 4.4x for global peers, and the valuation premium depends on sustained delivery of high growth.

  Comparison

  Morgan Stanley believes ChangXin Technology has stronger growth prospects than global peers and therefore assigns it a significant forward P/E premium.

  Risks

  Earlier-than-expected declines in DRAM prices, delays in new products or HBM and 3D DRAM R&D, tighter restrictions on equipment and materials for Chinese wafer fabs, and weaker demand from major Chinese customers.

Key data

• First-Half 2026 Revenue GuidanceRmb110-120bnCompany guidance
• First-Half 2026 Revenue Forecast~Rmb136bnMorgan Stanley forecast, above company guidance
• First-Half 2026 Guidance for Net Profit Attributable to ShareholdersRmb50-57bnCompany guidance
• First-Half 2026 Forecast for Net Profit Attributable to Shareholders~Rmb65bnMorgan Stanley forecast, above company guidance
• Third-Quarter 2026 Revenue Growth Forecast+35% Q/Q; +590% Y/YDriven by continued capacity expansion and higher DRAM average selling prices
• Third-Quarter 2026 Gross Margin Forecast77%Expected to continue rising
• Third-Quarter 2026 DRAM Contract Prices+15% Q/QThe report states that prices are trending toward this increase
• 2025-2028 Revenue CAGR140%Morgan Stanley forecast
• 2026-2028 Operating Margin70-72%Forecast range in the report
• DRAM Capacity Plan180k wpm in 2025; 300k wpm in 2026; 800k wpm in 2031Expected to increase by approximately 100k wpm annually after 2026
• Potential Chinese CPU Market SizeUS$42bnThe report's estimate for 2030
• Media-Reported Long-Term Agreement with ByteDanceFive-year term, worth more than US$7bnReported by Reuters, not yet confirmed by ChangXin Technology
• Media-Reported Long-Term Agreement with TencentMore than Rmb20bnReported by Reuters, not yet confirmed by ChangXin Technology
• Target Price and Target UpsideRmb88.00; 57%Relative to the Rmb56.10 closing price on August 26, 2026
• Target Price-Implied Valuation18.5x 2027e P/EGlobal peers trade at 4.4x
• Key Residual Income Model AssumptionsCoE 9.9%; beta 1.2; risk-free rate 2.0%; risk premium 6.6%; payout ratio 51%; medium-term growth rate 11.0%; perpetual growth rate 3%Valuation parameters for the Rmb88 base-case target price

Impact & implications

The report believes that near-term growth in both DRAM volume and prices could drive second-quarter results above company guidance and lead to a modest upward revision in consensus EPS estimates over the next 12 months. Over the longer term, the pace of capacity expansion, HBM investment, demand from China's AI infrastructure, and long-term agreements with cloud service providers will determine whether high growth can extend beyond the current memory upcycle; the peer valuation premium embedded in the Rmb88 target price also requires these growth drivers to continue materializing.

Risks

• Upside risks include DRAM prices proving more resilient than expected with support from AI demand.
• Upside risks include faster-than-expected technology migration.
• Upside risks include an easing of export controls.
• Upside risks include stronger-than-expected demand from major customers.
• Downside risks include global DRAM prices declining earlier than expected.
• Downside risks include delays in the development of new products, HBM, or 3D DRAM.
• Downside risks include further tightening of restrictions on semiconductor equipment, materials, or services for Chinese wafer fabs.
• Downside risks include weaker-than-expected demand from major Chinese customers.

What to watch

• Watch whether second-quarter 2026 revenue and gross margin exceed company guidance and market expectations.
• Watch whether the company provides second-half 2026 revenue guidance to assess the sustainability of earnings growth.
• Watch first-half 2026 capital expenditure to assess the progress of capacity expansion and whether it will accelerate further.
• Watch the allocation plan for new DRAM capacity between HBM and other products.
• Watch whether the company plans to sell DRAM to overseas brands amid the global memory shortage.
• Watch whether the company confirms or comments on long-term supply agreements with Chinese cloud service providers such as ByteDance and Tencent.