Nexchip (688249) Report Interpretation

Overview

This earnings review assesses Nexchip's post-2Q26 outlook. Goldman Sachs expects capacity expansion and a gradual shift into higher-value process nodes and power semiconductors to improve growth and margins, but it lowers near-term forecasts after weaker consumer-electronics demand and a slower-than-expected product-mix upgrade.

Core views

Goldman Sachs expects Nexchip's continuing capacity expansion, including a move toward 28nm and 22nm in 2027E, to support a more advanced product mix and reduce its exposure to consumer electronics. The expected mix shift includes more advanced logic, power semiconductors, OLED DDIC and eventually silicon-photonics IC fabrication. Power semiconductors are expected to start contributing in 2H26 and ramp through 2027, benefiting from server exposure and stronger AI-spending-related demand and pricing. The 28nm expansion is also expected to support OLED DDIC expansion, while silicon-photonics IC fabrication is under preparation for 100G/200G-per-lane sampling in 4Q27. The report expects these products, capacity additions and improving power-semiconductor pricing to support revenue growth of 24% year-on-year in 2026E and 29% in 2027E. Revenue is forecast at Rmb13,511.6mn in 2026E, Rmb17,400.8mn in 2027E and Rmb20,635.8mn in 2028E. Goldman Sachs expects operating margin to reach 14% in 2027E; its detailed forecasts show operating margin rising from 9.3% in 2026E to 14.1% in 2027E and 17.2% in 2028E as product mix and new products lift data-center exposure and pricing. The near-term reset follows a 2Q26 miss. Quarterly revenue was Rmb3,045mn, up 16% year-on-year and 5% quarter-on-quarter, but 9% below Goldman Sachs' Rmb3,356mn estimate. Gross profit of Rmb673mn was 17% below forecast, operating profit of Rmb210mn was 31% below forecast, and net income of Rmb195mn was 18% below forecast. Gross margin was 22.1%, 2.0 percentage points below the firm's expectation; operating margin was 6.9%, 2.1 percentage points below; and net margin was 6.4%, 0.7 percentage points below. Goldman Sachs lowers 2026E and 2027E revenue forecasts by 10% and 7%, respectively, citing slow consumer-electronics demand amid high memory costs and its prior assumption that the shift toward 55nm and more advanced products would occur faster. It continues to expect the upgrade, but at a slower pace. The firm cuts its 2026E gross-margin forecast to 24.9% from 28.7%, while raising 2027E and 2028E gross-margin forecasts to 30.4% and 33.2% as mix improvement and new products are expected to improve data-center exposure and price realization. It raises the 2026E operating-expense ratio by 2.4 percentage points for new-product R&D and keeps the 2027E-28E ratio near the 2026E level. Together with a higher tax-rate assumption, this reduces 2026E, 2027E and 2028E net-income forecasts by 17%, 6% and 14% to Rmb1,136mn, Rmb2,097mn and Rmb3,295mn. Goldman Sachs maintains its Neutral rating but lowers the 12-month target price to Rmb60 from Rmb70. It continues to use a 2030E discounted P/E method. The target multiple falls to 26.6x from 31.0x, based on peers' relationship between forward trading P/E and net-income growth and Nexchip's estimated 28% average net-income growth in 2030E-31E. The firm discounts the multiple back to 2027E using an unchanged 9% cost of equity. The new target implies 57x 2027E P/E, which it notes is close to Nexchip's average P/E of 61x since 2024.

Analysis framework

Goldman Sachs incorporates the 2Q26 result into its revenue, margin, operating-expense and tax assumptions, then projects the pace of capacity expansion and product-mix change through 2028E and beyond. It derives the target price using a peer-informed forward P/E versus net-income-growth relationship, applies a 26.6x 2030E target P/E, and discounts it back to 2027E using a 9% cost of equity.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Discounted P/E valuation using peers' relationship between forward P/E and net-income growth

  The report sets a 26.6x target P/E using peer valuation-growth relationships and Nexchip's estimated 2030E-31E average net-income growth, then discounts that value back to 2027E at a 9% cost of equity.

• Industry AnalysisVolume-price decomposition

  Product-mix, demand and pricing analysis

  The report links higher-node capacity and new products to a changing end-market mix, stronger power-semiconductor pricing, and future margin improvement.

Asset mapping & comparison

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

• Nexchip (688249.SH)

  Primary covered semiconductor foundry; capacity expansion and a shift toward power semiconductors and advanced nodes are expected to support growth.

  Strengths

  Planned 28nm/22nm capacity expansion, power-semiconductor ramp from 2H26, OLED DDIC opportunity, and planned silicon-photonics sampling in 4Q27.

  Weaknesses

  2Q26 results missed estimates, while consumer-electronics demand and product-mix migration were weaker than expected.

  Comparison

  The target P/E is derived from peers' correlation between forward-year trading P/E and net-income growth.

  Risks

  Capacity expansion, DDIC and CIS demand, R&D progress, and competition may differ from expectations.

Key data

• 2Q26 revenueRmb3,045mnUp 16% year-on-year and 5% quarter-on-quarter; 9% below Goldman Sachs' Rmb3,356mn estimate.
• 2Q26 net incomeRmb195mnDown 1% year-on-year and up 284% quarter-on-quarter; 18% below Goldman Sachs' estimate.
• 2026E revenueRmb13,511.6mnForecast to grow 24.1% year-on-year; reduced 10% from the prior estimate.
• 2027E revenueRmb17,400.8mnForecast to grow 28.8% year-on-year; reduced 7% from the prior estimate.
• 2026E-28E net-income revisions-17% / -6% / -14%Revised forecasts are Rmb1,136mn, Rmb2,097mn and Rmb3,295mn.
• 2027E operating margin14.1%Expected to improve from 9.3% in 2026E as product mix upgrades.
• 12-month target priceRmb60.00Reduced from Rmb70.00; based on 26.6x 2030E discounted P/E.

Impact & implications

The report sees a transition from consumer-electronics exposure toward power semiconductors, data-center-linked products, OLED DDIC and silicon photonics as the main source of future growth and margin improvement. However, the 2Q26 shortfall delays the anticipated mix upgrade, resulting in lower near-term revenue and earnings estimates and a reduced valuation target.

Risks

• Capacity expansion could be slower or faster than expected.
• Demand for DDIC and CIS could be weaker or stronger than expected.
• R&D progress could be slower or faster than expected.
• Competition could be more or less intense than expected.

What to watch

• The pace of 28nm/22nm capacity expansion in 2027E.
• Power-semiconductor contribution beginning in 2H26 and its ramp through 2027.
• Consumer-electronics demand conditions amid high memory costs.
• Progress in OLED DDIC expansion and planned 100G/200G-per-lane silicon-photonics sampling in 4Q27.
• Execution of new-product R&D and resulting product-mix and margin improvement.