Maintains Full-Year Revenue Growth Guidance; Overseas Demand Improves but Gross Margin Remains Under Pressure

Overview

This report reviews Shanghai BOCHU Electronic Technology's 2Q26 earnings call. Morgan Stanley believes the company's full-year operating targets remain stable, with key focus areas including growth in the cutting business, scaling of the welding business, improving overseas demand, and expansion into industry solutions for sectors such as shipbuilding.

Core views

Management maintained its target of 20% year-on-year revenue growth in 2026. Cutting-product revenue grew 20% year on year, welding business sales volume reached 2,500 units, and the revenue target for precision applications is Rmb70mn. The company currently holds approximately 70% of the cutting market, with a long-term goal of integrating its cutting and welding process expertise to transform into a comprehensive solutions provider. Near-term margins face pressure from a product mix shift toward cutting heads, welding, and precision applications, as well as rising costs for memory chips and sensing electronic components.

Analysis framework

The report draws conclusions based on 2Q26 and 1H26 operating data, changes in segment and regional demand, management guidance, and valuation comparisons, and sets its target price using a 2027 forward P/E valuation methodology.

Methodology notes

• Valuation FrameworkP/E Valuation Methodology

  The target price is based on 30x 2027 forward P/E.

  This target multiple reflects the company's leading position in laser cutting motion control systems, but is below its five-year historical average FY2 P/E of 36x because revenue growth is expected to slow from 2026 to 2027.

• Research ModelMorgan Stanley ModelWare

  Unless otherwise noted, metrics in the report are based on the Morgan Stanley ModelWare framework.

  The model is used to present earnings forecasts, valuation multiples, and financial return metrics.

Asset mapping & comparison

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

• Shanghai BOCHU Electronic Technology (688188.SS)

  Covered company

  Strengths

  Leading market position in laser cutting motion control systems, with approximately 70% cutting market share; room for expansion in welding, overseas, and industry solutions businesses.

  Weaknesses

  Product mix changes and higher raw-material costs have already pressured gross margin.

  Comparison

  30x 2027 forward P/E is below the company's five-year historical average FY2 P/E of 36x.

  Risks

  Weaker demand for low- to mid-power equipment, unfavorable product mix, and intensifying market competition could compress margins.

Key data

• 2026 Revenue Growth Target20% year-on-year growthManagement maintained this full-year target during the earnings call.
• 2Q26 RevenueRmb730mnUp 20% year on year and 33% quarter on quarter.
• 1H26 RevenueRmb1,278mnUp 16% year on year.
• 2Q26 Gross Margin73.5%Down 6.2 percentage points year on year and 1.0 percentage point quarter on quarter.
• 1H26 Overseas DemandApproximately 10% year-on-year growthIncludes indirect overseas demand.
• Cutting Market ShareApproximately 70%Current market share disclosed by management.
• Target PriceRmb122.00Implies 14% upside.

Impact & implications

Maintaining full-year guidance helps stabilize growth expectations. Welding, precision applications, and integrated industry solutions can broaden revenue sources, while improving overseas demand also provides incremental growth. At the same time, expansion into relatively lower-margin products and rising electronic-component costs may limit near-term profitability improvement. Market-share gains in high-power motion control systems and faster-than-expected expansion of the welding market would be valuation upside catalysts.

Risks

• Narrowing demand for low- to mid-power equipment.
• Product mix unfavorable to profitability.
• Intensifying competition in the low- to mid-power market, creating margin pressure.
• Continued increases in costs for materials such as memory chips and sensing electronic components.
• Overseas demand improvement falls short of expectations.

What to watch

• Progress toward the full-year target of 20% year-on-year revenue growth.
• Changes in welding motion control system sales volume, export mix, and customer repurchase rates.
• Overseas demand and sales performance of overseas flat sheet solutions.
• Cutting-head attachment rates and the impact of product mix on gross margin.
• Progress of Huzhou shipbuilding project deliveries in 2027, as well as implementation of integrated shipbuilding and construction machinery production-line projects.
• Changes in high-power motion control system market share.