DRAM Costs and DJI Competition Weigh on Arashi Vision's Near-Term Earnings; UBS Cuts Target Price to Rmb126

Overview

The report adopts a more cautious view of Arashi Vision's near-term growth and margins. Rapidly rising DRAM costs, limited ability to pass costs through amid competition from DJI, and a slower-than-expected ramp-up of the drone business have jointly led to cuts in earnings forecasts and the target price. At the same time, UBS believes handheld intelligent imaging remains at an early stage of development and that the company's new-product pipeline and global footprint can support relatively rapid growth over the next two to three years.

Core views

UBS expects Arashi Vision's second-quarter revenue to grow 35% YoY but earnings to decline 73% YoY. The primary pressure comes from DRAM cost increases exceeding prior expectations. For reference, DRAMeXchange data show that the contract price of DDR5 16Gb (2Gx8) rose 676% YoY in the second quarter of 2026 and more than 600% YoY in the first half of 2026, although the cost of the LPDDR5 actually used by the company may differ. The report estimates that memory chips' share of the BOM cost of Insta360 cameras rose from approximately 5% before the price increases to approximately 20% in the first half of 2026. Given limited room for product price increases, UBS expects second-quarter gross margin to fall to 38%, down 12 percentage points YoY. The key reason the cost pressure cannot be fully passed on to consumers is direct competition with DJI. The two companies launched similar products at around the same time in the handheld gimbal and panoramic camera segments. Price competition eased somewhat after material costs increased, but DJI continued to offer discounts: its discount relative to Insta360 panoramic cameras narrowed from approximately 30% in October 2025 to approximately 20% for the latest dual-lens gimbal camera in major overseas markets and approximately 5% in the domestic market as of August 2026. This means that although competition no longer relies solely on steep price cuts, it still constrains Arashi Vision's ability to offset rising costs through price increases. Demand and user engagement data also indicate that Arashi Vision's growth momentum has slowed. Growth in global Insta360 app downloads declined from 73% YoY in the first quarter to 51% YoY in the second quarter, while DJI accelerated from 13% to 82% over the same period; the respective comparison bases in the second quarter of 2025 were 54% and 226% YoY growth. UBS believes Luna Ultra, launched in June, made a limited contribution to the second quarter. Based on channel checks and app download data, the report also lowered its expectations for the pace of the drone business ramp-up, citing tighter domestic drone regulation and a slower-than-expected sales ramp in overseas markets. Earnings forecasts were lowered accordingly. UBS cut its 2026—28 EPS forecasts from Rmb1.96, Rmb2.87, and Rmb4.75 to Rmb1.62, Rmb2.46, and Rmb4.21, respectively, representing reductions of 17%, 14%, and 11%; the corresponding market consensus forecasts are Rmb2.67, Rmb4.73, and Rmb7.98. The report expects 2026 sales to increase 44% YoY to Rmb14.046 billion, but net profit to decline 30% YoY to Rmb650 million, with net margin falling 5 percentage points to 4.6%. By comparison, sales grew 75% and net profit declined 7% in 2025. UBS expects the R&D expense ratio to remain at 16% in 2026, continuing to weigh on near-term profit, but R&D investment will support new products such as cameras, drones, and interchangeable-lens cameras and may translate into longer-term revenue growth. UBS still believes the company can maintain medium-term growth above the industry average. Handheld intelligent imaging devices remain at an early stage of development, and product innovation, geographic expansion, sales-channel development, and product-line extensions are expected to drive a 33% sales CAGR for Arashi Vision in 2026—28. The company plans to launch upgraded action cameras, own-brand camera drones, and two types of interchangeable-lens cameras from the second half of 2026 through 2027; this excludes the new pocket cameras and panoramic cameras already launched between June and August 2026. The report also notes that the company ranked first in the global panoramic camera market and second in the action camera market in 2023, with its existing market position and continued innovation forming the foundation for long-term growth. In terms of valuation, UBS uses a sum-of-the-parts approach, valuing the camera business at Rmb96 per share based on 39x forecast 2027 PE, a 61% EPS CAGR for 2026—28, and 0.6x PEG. The drone business is valued at Rmb30 per share based on 9x forecast 2027 PS. Together, the two segments yield a target price of Rmb126. This target price is substantially lower than the previous Rmb200. The report lists downside, base-case, and upside scenario prices of Rmb90, Rmb126, and Rmb160, respectively. As of August 25, 2026, the company's share price was Rmb122.71, down approximately 67% from its third-quarter 2025 peak and approximately 36% from the end of April 2026. The stock trades at 50x 2027 PE based on UBS forecasts, corresponding to a 61% EPS CAGR for 2026—28. UBS believes the market has already priced in, to some extent, competition from DJI in the camera and drone segments and margin pressure caused by rising memory prices. At the target price, forecast price appreciation is 2.7%, the dividend yield is 0.1%, and total stock return is 2.8%, below the assumed market return of 6.8%, implying a forecast excess return of -3.9%. UBS therefore maintains its Neutral rating while retaining a positive view of long-term growth over the next two to three years.

Analysis framework

The report first maps changes in DRAM contract prices to camera BOM costs and gross margin, then assesses competition and demand trends by combining the product launch timing of Insta360 and DJI, regional price differences, and Sensor Tower app download data. UBS subsequently evaluates the ramp-up of the drone business through channel checks, adjusts its revenue, margin, and EPS forecasts, and finally values the camera and drone businesses separately and adds them together to derive the target price, while testing the rating conclusion against current valuation, expected returns, and scenario prices.

Methodology notes

• Valuation MethodSOTP Valuation

  Segment Valuation of the Camera and Drone Businesses

  UBS estimates the per-share value of the camera and drone businesses separately, then adds Rmb96 and Rmb30 to derive a target price of Rmb126.

• Valuation MethodPE/PEG valuation

  PE and PEG Valuation of the Camera Business

  The camera business is valued at 39x forecast 2027 PE, combined with a 61% EPS CAGR for 2026—28, corresponding to 0.6x PEG to reflect the relationship between earnings growth and the valuation multiple.

• Valuation MethodPS valuation

  PS Valuation of the Drone Business

  Because the drone business remains in the ramp-up stage, the report applies 9x forecast 2027 PS, valuing it at Rmb30 per share.

• Industry/Industrial Analysis FrameworkUpstream, Midstream, and Downstream Industry-Chain Transmission

  Transmission of DRAM Price Increases to BOM Costs, Product Prices, and Gross Margin

  Starting with upstream DRAM prices, the report estimates the change in memory chips' share of the BOM, then considers pricing constraints caused by competition and ultimately derives the decline in gross margin.

• (Out-of-Vocabulary Method)

  Tracking Sensor Tower App Download and Usage Data

  UBS Evidence Lab uses Sensor Tower's App Analytics data to compare app downloads and monthly active-user growth for Insta360 and DJI globally and in major countries, helping assess product demand, competitive dynamics, and business performance.

• (Out-of-Vocabulary Method)

  Upside, Base-Case, and Downside Scenario Price Analysis

  The report presents upside, base-case, and downside scenarios of Rmb160, Rmb126, and Rmb90 to show the valuation range under different operating outcomes.

Asset mapping & comparison

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

• Arashi Vision (影石创新, 688775.SS)

  The report's primary research subject; near-term earnings are weighed down by rising DRAM prices, limited cost pass-through, and competition from DJI, while long-term growth depends on global expansion and the ramp-up of new product categories.

  Strengths

  Ranked first in the global panoramic camera market and second in the action camera market in 2023; possesses product innovation capabilities and a new-product pipeline spanning action cameras, pocket cameras, panoramic cameras, drones, and interchangeable-lens cameras.

  Weaknesses

  Memory chips account for a rising share of costs, while pricing power is constrained by competition; app download growth has slowed, the drone business is ramping more slowly than expected in both domestic and overseas markets, and R&D investment will continue to weigh on profit in 2026.

  Comparison

  DJI launched similar products at around the same time, with global app download growth accelerating from 13% in the first quarter to 82% in the second quarter, while Insta360 slowed from 73% to 51%; DJI's latest products remain priced approximately 20% below Insta360 overseas and approximately 5% below domestically.

  Risks

  Demand, price competition, new-product ramp-up, global expansion, costs, and exchange rates could all cause actual performance to deviate from forecasts.

Key data

• Second-Quarter Revenue Change+35% YoYUBS forecast
• Second-Quarter Earnings Change-73% YoYUBS forecast
• Second-Quarter Gross Margin38%Expected to decline 12 percentage points YoY
• DDR5 16Gb Contract Price2Q26 +676% YoY; 1H26 more than +600% YoYDRAMeXchange data; the cost of the LPDDR5 actually used by the company may differ
• Memory Chips' Share of Camera BOM CostsRose from approximately 5% to approximately 20%From the level before the price increases to UBS's estimate for the first half of 2026
• Growth in Global Insta360 App DownloadsQ1 +73% YoY; Q2 +51% YoYGrowth slowed
• Growth in Global DJI App DownloadsQ1 +13% YoY; Q2 +82% YoYGrowth accelerated
• DJI Discount Relative to Insta360Declined from approximately 30% to approximately 20%/5%The discount on panoramic cameras in October 2025 narrowed to approximately 20% for the latest dual-lens gimbal camera in major overseas markets and approximately 5% domestically as of August 2026
• 2026 RevenueRmb14,046m, +44% YoYUBS forecast
• 2026 Net ProfitRmb650m, -30% YoYUBS forecast
• 2026 Net Margin4.6%Down 5 percentage points YoY
• 2026—28 EPS RevisionsRmb1.62/Rmb2.46/Rmb4.21Cut by 17%/14%/11%, respectively, from Rmb1.96/Rmb2.87/Rmb4.75
• 2026—28 Sales CAGR33%Driven by geographic, channel, and product-line expansion
• 2026—28 EPS CAGR61%Used in the camera business valuation and current trading-multiple analysis
• 2026 R&D Expense Ratio16%Supports new cameras, drones, and interchangeable-lens cameras
• Target PriceRmb126.00Cut from Rmb200.00; Rmb96 for the camera business and Rmb30 for the drone business
• Valuation ScenariosRmb90/Rmb126/Rmb160Downside, base-case, and upside scenarios
• Current Valuation50x 2027E PECorresponding to a 61% EPS CAGR for 2026—28
• Share Price PerformanceApproximately -67%/-36% from the 3Q25 peak/end-April 2026UBS believes this primarily reflects earnings concerns during the memory cycle and competition from DJI
• Forecast Stock Return2.8%Price appreciation of 2.7% plus a dividend yield of 0.1%; relative to the assumed market return of 6.8%, excess return is -3.9%

Impact & implications

UBS believes Arashi Vision's near-term revenue growth cannot be fully converted into profit growth because higher shipments amplify the impact of rising memory prices, while competition from DJI constrains room for price increases. The slower ramp-up of the drone business also reduces near-term growth leverage, leading to cuts in both 2026—28 earnings forecasts and the target price. However, continued R&D, new-product launches, increasing global penetration, and expansion into drones and interchangeable-lens cameras could still support relatively high sales growth over the next two to three years.

Risks

• Weak consumer confidence could cause demand to fall below expectations.
• Price competition in domestic and overseas markets could intensify further.
• New-product sales could ramp more slowly than expected.
• Global expansion could progress more slowly than expected.
• Cost increases could exceed expectations.
• Exchange-rate fluctuations could result in foreign-exchange losses.
• If consumer confidence is stronger than expected, demand could exceed forecasts, representing upside risk.
• If price competition in domestic and overseas markets is relatively moderate, profit performance could exceed forecasts.
• If new-product sales ramp faster than expected, revenue and earnings could exceed forecasts.
• If global expansion proceeds faster than expected, growth could exceed forecasts.
• If cost increases are limited, gross margin could be better than forecast.
• Exchange-rate fluctuations could also generate foreign-exchange gains, representing upside risk.

What to watch

• Track DRAM and mobile DRAM prices, as well as changes in memory chips' share of camera BOM costs.
• Monitor whether Arashi Vision can offset cost pressure through price increases and track regional price differences relative to DJI.
• Track app downloads and monthly active-user growth for Insta360 and DJI.
• Monitor the launch and sales ramp-up of upgraded action cameras, own-brand camera drones, and two types of interchangeable-lens cameras from the second half of 2026 through 2027.
• Track changes in domestic drone regulation and the ramp-up of the drone business in overseas markets.
• Monitor gross margin, the 16% R&D expense ratio, and the path to earnings recovery in 2026.
• The report's near-term quantitative assessment indicates no clear catalyst over the next three months.