Jingsheng Mechanical & Electrical's 1H26 profit came under pressure, but semiconductor equipment orders and rising SiC substrate volumes support subsequent growth

Overview

The report reviews Jingsheng Mechanical & Electrical's 1H26 results, focusing on the conversion of semiconductor equipment orders and the ramp-up of SiC substrates. Nomura believes that declining revenue from solar equipment and materials placed significant pressure on current-period profit, but the semiconductor order backlog, growth in contract liabilities, and progress in SiC mass production support subsequent improvements in revenue and profitability. It therefore reiterates its Buy rating and CNY 60.00 target price.

Core views

1H26 results declined significantly, with the main pressure coming from the solar equipment and materials businesses. The company's revenue declined 40.5% YoY to CNY 3,452mn, including a 46.9% decline in equipment and services revenue to CNY 2,166mn and an 11.4% decline in materials revenue to CNY 1,087mn. Despite the revenue contraction, overall gross margin increased 6.0 percentage points YoY to 30.4%; equipment gross margin increased 4.9 percentage points to 37.9%, while materials gross margin increased 12.5 percentage points to 18.7%, indicating some improvement in business profitability. The gross margin improvement was insufficient to offset the revenue decline, rigid expenses, and changes in non-operating items. 1H26 operating expenses increased 9.6% YoY to CNY 826mn, with the expense ratio rising from 13.0% in 1H25 to 23.9%. Administrative expenses increased 25.8% YoY due to higher depreciation and amortization; R&D expenses remained at CNY 464mn, but the relative R&D burden increased because of the smaller revenue base. Net profit declined 63.7% YoY to CNY 232mn, and earnings per share fell from CNY 0.49 in 1H25 to CNY 0.18; recurring net profit declined 80.9% to CNY 102mn. The profit decline was also affected by other income falling from CNY 212mn to CNY 87mn, a CNY 100mn inventory write-off, and an increase in the effective tax rate from 15.0% to 27.6%. Semiconductor equipment is the principal source of subsequent growth identified in the report. As of June 30, 2026, the company's outstanding contracts for integrated circuit and compound semiconductor equipment exceeded CNY 4.7bn. Management expects related equipment and materials revenue to exceed CNY 4.0bn for full-year 2026; after deducting the CNY 1,307mn already recognized in 1H26, Nomura estimates that 2H26 revenue will approach CNY 2.7bn. Period-end contract liabilities increased from CNY 2,094mn at the end of 2025 to CNY 3,679mn. Management stated that the increase mainly came from advance payments for semiconductor and solar equipment, further supporting expectations for subsequent order delivery and revenue recognition. Demand for large-diameter silicon wafer equipment also underpins the assessment of the semiconductor business. Management stated that domestic demand currently accounts for approximately 90% of China's large-diameter silicon wafer equipment market, Jingsheng Mechanical & Electrical has shipped more than 1,300 units cumulatively, and current supply still has not kept pace with customers' capacity expansion. The company believes 2026 is not yet the peak year for large-diameter silicon wafer capacity expansion and expects capital expenditure to increase further in 2027—2028. The report therefore views the conversion of existing orders and subsequent industry capacity expansion as a continuous growth path rather than one dependent solely on demand in a single year. The SiC substrate business is in the revenue and capacity ramp-up stage. The business generated less than CNY 100mn in revenue in 1Q26 and slightly more than CNY 200mn cumulatively in 1H26. Management stated that quarterly revenue is increasing by approximately CNY 100mn per quarter. The 6-inch and 8-inch substrate project with annual capacity of 900k wafers is scheduled to be fully completed by the end of 2026; the company aims for the substrate business to achieve quarterly profitability in 4Q26 on quarterly revenue of CNY 300mn. The gross margin of 8-inch substrates is estimated at 22%—30%, and the products are already profitable; the gross margin of 6-inch products is positive, but further cost reductions remain a target for 2027. Product and customer progress supports the SiC ramp-up target. The company stated that its 8-inch substrates have achieved large-scale supply, 12-inch products have entered small-batch supply, and it has made volume shipments to more than half of the leading global and domestic power chip manufacturers among its customers. The Penang plant is scheduled to receive equipment in 4Q26 and commence production-line operations in 1Q27, representing a subsequent overseas capacity milestone. Regarding valuation, Nomura uses the price-to-earnings method. The CNY 60 target price is based on 61x forecast FY2026 P/E, two standard deviations above the historical average P/E of 29x, with the CSI 300 as the benchmark. The report reiterates its Buy rating and target price, while also noting that weaker solar equipment orders, more intense-than-expected competition in semiconductor equipment, and slower adoption of 8-inch SiC could prevent the target price from being achieved.

Analysis framework

The report first breaks down changes in revenue and gross margin by equipment and services and materials, and then explains the decline in net profit through expenses, other income, inventory write-offs, and the tax rate. It subsequently uses outstanding contracts, contract liabilities, and full-year revenue guidance to infer 2H26 semiconductor revenue, while assessing the sustainability of growth based on large-diameter silicon wafer equipment shipments, supply and demand, and capital expenditure in 2027—2028. For the SiC business, the report evaluates the path to profitability through revenue ramp-up, capacity construction, size mix, gross margin, customer coverage, and overseas plant milestones, before determining the target price based on forecast FY2026 P/E.

Methodology notes

• Valuation MethodPE/PEG valuation

  Price-to-Earnings Valuation

  Nomura values Jingsheng Mechanical & Electrical at 61x forecast FY2026 P/E, equivalent to two standard deviations above the historical average P/E of 29x, and derives a CNY 60 target price.

• Corporate Fundamentals and Financial Framework

  Segment Performance and Profit Change Bridge

  The report first breaks down the revenue and gross margins of equipment and services and materials, and then combines operating expenses, other income, inventory write-offs, and the effective tax rate to explain why net profit and recurring net profit declined faster than revenue.

• Corporate Fundamentals and Financial Framework

  Cross-Validation of Order Backlog, Contract Liabilities, and Revenue Guidance

  The report combines more than CNY 4.7bn of outstanding contracts, CNY 3,679mn of contract liabilities, and full-year semiconductor revenue guidance of more than CNY 4.0bn to infer revenue of nearly CNY 2.7bn in 2H26.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Large-Diameter Silicon Wafer Equipment Supply-Demand and Capacity Expansion Cycle

  Based on the share of domestic demand, cumulative equipment shipments, supply failing to keep pace with customers' capacity expansion, and expectations for capital expenditure in 2027—2028, the report concludes that demand for large-diameter silicon wafer equipment has room to continue.

Asset mapping & comparison

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

• Zhejiang Jingsheng Mechanical & Electrical (300316.SZ)

  The company is currently being weighed down by weakness in its solar equipment and materials businesses, but the conversion of semiconductor equipment orders and rising SiC substrate volumes are viewed by the report as sources of subsequent growth and profitability improvement.

  Strengths

  Outstanding semiconductor equipment contracts exceed CNY 4.7bn, and contract liabilities have increased significantly; cumulative shipments of large-diameter silicon wafer equipment exceed 1,300 units; 8-inch SiC substrates are already profitable and have achieved large-scale supply.

  Weaknesses

  1H26 revenue, net profit, and recurring net profit declined significantly; revenue contraction caused the expense ratio to rise, and 6-inch SiC substrates still require further cost reductions.

  Comparison

  The target price valuation uses 61x 2026F P/E, two standard deviations above the company's historical average P/E of 29x; the stock performance benchmark is the CSI 300.

  Risks

  A weaker solar equipment order backlog, more intense-than-expected competition in semiconductor equipment, and slower adoption of 8-inch SiC.

Key data

• 1H26 RevenueCNY 3,452mnDown 40.5% YoY
• Equipment and Services RevenueCNY 2,166mnDown 46.9% YoY
• Materials RevenueCNY 1,087mnDown 11.4% YoY
• Overall Gross Margin30.4%Up 6.0 percentage points YoY
• Operating ExpensesCNY 826mnUp 9.6% YoY, with the expense ratio rising from 13.0% to 23.9%
• 1H26 Net ProfitCNY 232mnDown 63.7% YoY
• 1H26 Earnings per ShareCNY 0.18CNY 0.49 in 1H25
• Recurring Net ProfitCNY 102mnDown 80.9% YoY
• Outstanding Semiconductor Equipment ContractsMore than CNY 4.7bnAs of June 30, 2026
• Implied 2H26 Semiconductor Equipment and Materials RevenueNearly CNY 2.7bnEstimated by subtracting CNY 1,307mn in 1H26 from full-year guidance of more than CNY 4.0bn
• Contract LiabilitiesCNY 3,679mnCNY 2,094mn at the end of 2025
• Cumulative Large-Diameter Silicon Wafer Equipment ShipmentsMore than 1,300 unitsManagement stated that current supply still has not kept pace with customers' capacity expansion
• SiC Substrate 1H26 RevenueSlightly more than CNY 200mnLess than CNY 100mn in 1Q26
• SiC Quarterly Profitability Target4Q26ECorresponding to quarterly revenue of CNY 300mn
• 8-inch SiC Substrate Gross Margin22%—30%Management stated that 8-inch products are already profitable
• SiC Substrate Project Capacity900k wafers/yearThe 6-inch and 8-inch projects are scheduled to be fully completed by the end of 2026
• Target Price Valuation61x 2026F P/ETwo standard deviations above the historical average P/E of 29x

Impact & implications

The report believes the 1H26 profit decline reflects weak solar-related revenue, a rising expense ratio, and drag from non-operating items, but the improvement in gross margin indicates that the profitability of core products has improved. Semiconductor equipment orders and contract liabilities provide visibility for revenue recognition in 2H26, while the SiC substrate business would reach an important milestone in improving materials profitability if it achieves quarterly revenue of CNY 300mn and turns profitable in 4Q26 as planned. Capital expenditure on large-diameter silicon wafers in 2027—2028 and the commencement of production at the Penang plant will determine whether growth can continue.

Risks

• The solar equipment order backlog may weaken further.
• Competition in the semiconductor equipment market may be more intense than expected.
• Market adoption of 8-inch SiC substrates may be slower than expected.

What to watch

• Monitor whether more than CNY 4.7bn of outstanding semiconductor equipment contracts can be converted as planned into nearly CNY 2.7bn of revenue in 2H26.
• Monitor large-diameter silicon wafer equipment supply, customers' capacity expansion, and changes in capital expenditure in 2027—2028.
• Monitor whether quarterly SiC substrate revenue can reach CNY 300mn and achieve quarterly profitability in 4Q26.
• Monitor whether the 6-inch and 8-inch substrate project with annual capacity of 900k wafers can be fully completed by the end of 2026.
• Monitor whether the Penang plant can receive equipment in 4Q26 and commence production-line operations in 1Q27.
• Monitor whether further cost reductions can be achieved for 6-inch SiC substrates in 2027.