MetaX Integrated Circuits (688802) Report Interpretation

Overview

Morgan Stanley’s earnings update on MetaX finds 2Q26 revenue broadly in line, but gross margin weaker than expected. The firm reiterates Equal-weight, arguing that C600’s node-related efficiency and thermal limitations may continue to pressure pricing and margins until the next-generation C700 progresses.

Core views

MetaX reported 2Q26 revenue of Rmb762mn, up 36% quarter on quarter and 28% year on year, broadly in line with Morgan Stanley’s Rmb772mn estimate. The report attributes the growth primarily to shipments of the new C600 family. Inventory was Rmb1.4bn, roughly flat sequentially, while prepayments reached Rmb2.2bn as the company proactively stocked wafers and HBM to support future production. Gross margin was 55.1%, 4 percentage points below Morgan Stanley’s estimate. Based on supply-chain checks, the firm attributes the shortfall to elevated memory costs, especially HBM, and strategic price reductions intended to expand market share. Reported net profit attributable to shareholders was Rmb711mn, significantly above Morgan Stanley’s estimate because of Rmb883mn in fair-value gains on financial assets. Excluding that non-recurring item, the underlying net loss would have been Rmb172mn, below the firm’s forecast. Morgan Stanley maintains its Equal-weight rating. It argues that the C600 series, built mainly on the N+1 (12nm) node, is somewhat behind peers in power efficiency and thermal performance. In its view, these product characteristics will continue to weigh on pricing and gross margins despite revenue growth from the C600 ramp. The next key product catalyst is the tape-out and volume ramp of the C700 series. The Rmb758.00 price target implies 12% upside from the August 28, 2026 close of Rmb674.90. The valuation assumptions include a 6.5% cost of equity derived from a beta of 0.75, a 2.0% risk-free rate and a 6.5% equity risk premium; a 51% long-term target payout ratio, increased from 50%; an 18% medium-term CAGR through 2038e; and 6% perpetual terminal growth.

Analysis framework

Morgan Stanley compares quarterly revenue, gross margin and profit with its estimates, separates reported earnings from the fair-value gain to assess underlying profitability, and uses supply-chain checks to interpret cost and pricing pressure. It then links C600’s product characteristics to pricing and margin prospects, while valuing the company using long-term return, payout, growth and terminal-growth assumptions.

Methodology notes

• Valuation methodsDDM (Dividend Discount Model)

  Long-term payout, cost of equity, medium-term growth and perpetual terminal-growth assumptions.

  The report’s valuation assumptions use a target payout ratio and discount-rate and growth inputs to frame the Rmb758.00 price target.

• Quantitative, Factor, and Portfolio TheoryCAPM (Capital Asset Pricing Model)

  Cost of equity derived from beta, a risk-free rate and an equity risk premium.

  Morgan Stanley derives a 6.5% cost of equity using a beta of 0.75, a 2.0% risk-free rate and a 6.5% equity risk premium.

Asset mapping & comparison

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

• MetaX Integrated Circuits (688802.SH)

  Primary covered company; C600 shipments supported 2Q26 revenue growth, while cost and pricing pressure weakened gross margin.

  Strengths

  C600-family shipments drove revenue growth; inventory remained contained while prepayments supported future production.

  Weaknesses

  C600 is viewed as slightly behind peers in power efficiency and thermal performance, which may constrain pricing and gross margins.

  Comparison

  Morgan Stanley views C600 as slightly lagging peers on power efficiency and thermal performance.

  Risks

  Product concentration, weaker-than-expected demand and intensifying competition.

Key data

• 2Q26 revenueRmb762mnUp 36% Q/Q and 28% Y/Y; in line with Morgan Stanley’s Rmb772mn estimate.
• Gross margin55.1%4 percentage points below Morgan Stanley’s estimate.
• Reported net profit attributable to shareholdersRmb711mnSupported by Rmb883mn in fair-value gains on financial assets.
• Underlying net loss excluding fair-value gainsRmb172mnBelow Morgan Stanley’s forecast.
• InventoryRmb1.4bnRoughly flat Q/Q.
• PrepaymentsRmb2.2bnReflects proactive stocking of wafers and HBM for future production.
• Price targetRmb758.00Implies 12% upside to the August 28, 2026 closing price of Rmb674.90.

Impact & implications

The report views shipment growth as constructive but insufficient to change its relative stance because C600’s cost, pricing and performance pressures may restrain margin improvement. Morgan Stanley identifies the C700 tape-out and volume ramp as the next major determinant of the operating outlook.

Risks

• Product concentration risk.
• Weaker-than-expected demand.
• Intensifying competition.

What to watch

• The tape-out and volume ramp of the next-generation C700 series.
• The pace of C600 ramp and whether it is better than expected.
• CUDA migration and the strength of government and CSP orders.
• HBM and other memory costs, as well as the effect of strategic pricing on gross margin.