Morgan Stanley Maintains Overweight on Horizon Robotics, Cuts Target Price to HK$10

Overview

Morgan Stanley published a company research report on Horizon Robotics (9660.HK) and maintained an Overweight rating. The report argues that the stock's year-to-date underperformance mainly reflects softer auto demand, rising memory costs, intensifying competition, and higher R&D spending. However, J6P/HSD ramp-up, the launch of the integrated cockpit-driving solution, and the J7 platform launch from late 2026 to early 2027 should continue to support orders, revenue growth, and long-term competitiveness.

Core views

The core view is: first, Horizon is gaining share among third-party ADAS/AD chip suppliers, with 2M26 share at about 12%, above 11% in 2025; second, the J6P/HSD mix can lift ASP and margins, and may contribute 300,000 to 400,000 units in 2026; third, the company still believes it can achieve gross margin above 60% in 2026, but the lower mix of high-margin licensing and services leads to a downward revision to forecast gross margin; fourth, although R&D spending is aggressive, it is viewed as a key investment to support the J7 platform and subsequent orders; fifth, the integrated cockpit-driving solution may save OEMs several thousand yuan per vehicle and become a stock catalyst.

Analysis framework

The report updates 2026-2028 shipments, revenue, gross margin, R&D expenses, losses, and target price based on the 2026 operating outlook, year-to-date ADAS/AD chip shipment data, product-mix changes, R&D spending plans, and a DCF valuation framework.

Methodology notes

• Valuation methodsProbability-weighted DCF

  25% bull, 50% base, 25% bear scenario weighting to derive target price

  The report uses a probability-weighted DCF valuation, with key assumptions including a 12.2% WACC, 1.9 beta, and a 3% long-term growth rate to reflect the high volatility, intensified competition, and geopolitical risks in intelligent driving.

• Research modelMorgan Stanley ModelWare

  Morgan Stanley internal forecasting framework

  Unless otherwise noted, the financial and operating metrics in the report are based on the Morgan Stanley ModelWare framework and Morgan Stanley research estimates.

Asset mapping & comparison

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

• Horizon Robotics 9660.HK

  coverage name

  Strengths

  Third-party ADAS/AD chip share is rising; J6P/HSD ramp-up is accelerating; the integrated cockpit-driving solution has cost-saving potential; and the J7 platform will drive long-term product upgrades.

  Weaknesses

  R&D spending is elevated, visibility on licensing and services revenue is limited, and product-mix changes are pressuring gross-margin forecasts.

  Comparison

  The report estimates Horizon's solution costs 30%-40% less per TOPS than peers; as of 2M26, NVIDIA still leads third-party L2+ AD chip suppliers with over 50% share, while Horizon's share is about 12%.

  Risks

  Competition from Huawei, NVIDIA, Qualcomm, and in-house AD chips developed by EV players such as NIO, XPeng, and Li Auto; and the possibility that heavy R&D spending does not translate into revenue growth.

• China ADAS/AD ecosystem

  industry exposure

  Strengths

  Rising L2+ AD penetration in China, OEM smart-driving upgrades, and domestic supply-chain demand provide long-term industry growth.

  Weaknesses

  Soft auto demand, customer sales pressure, supply-chain disruptions, and price competition could weigh on industry profitability.

  Comparison

  NVIDIA still holds the leading share, and Horizon's further growth depends on share-of-wallet gains at BYD, Geely, and Chery, as well as mass production of new projects at Chang'an, Dongfeng, and GAC.

  Risks

  Slower-than-expected ADAS/AD adoption in China, successful OEM self-developed hardware, supply-chain disruptions, and geopolitical restrictions.

Key data

• RatingOverweightThe report maintains its OW view.
• Target priceHK$10.00Cut 13% from the prior HK$11.5.
• Base-case valueHK$9.5Equivalent to 18x 2026E P/Sales.
• Bull-case valueHK$16.0Equivalent to 30x 2026E P/Sales.
• Bear-case valueHK$5.0Equivalent to 9x 2026E P/Sales.
• 2026/2027/2028 ADAS/AD chip shipment forecast5.5 million/7.1 million/8.5 million unitsRaised by 2%-4% versus previous forecasts.
• 2026 J6P+HSD contribution300,000 to 400,000 unitsExpected to rise to about 1 million+ units from 2027 onward.
• 2026 R&D expense forecastRMB 5.9 billionUp about 14% YoY and roughly 90% of the 2026 revenue forecast.
• 2026-2028 R&D expense forecastRMB 5.9 billion/6.4 billion/6.8 billionReflects compute investment and spending for the J7 platform launch.
• Profitability inflection pointNet profit breakeven in 2028Adjusted net profit is expected to approach breakeven in 2027.

Impact & implications

For investors, the report sends a combined signal of 'the long-term growth story remains intact, but near-term profitability pressure is rising.' The target price cut reflects more conservative gross-margin and R&D expense assumptions, but the maintained Overweight rating shows Morgan Stanley still believes J6P/HSD, the integrated cockpit-driving solution, and the J7 platform can drive share gains, ASP improvement, and operating leverage.

Risks

• Intensifying competition from Huawei, NVIDIA, Qualcomm, and AD chips self-developed by Chinese EV start-ups.
• Limited visibility on licensing and services revenue; this business contributed about 75% of gross profit in 2025.
• If sustained high R&D spending does not translate into meaningful revenue growth, profitability and valuation will be pressured.
• ADAS/AD adoption in China is slower than expected.
• Supply-chain disruptions or continued increases in memory and other raw-material costs.
• Sales pressure on key customers' vehicle volumes in China.
• U.S. executive orders, export controls, and potential geopolitical restrictions could affect investment or trade activity.

What to watch

• J6P mass-production delivery progress and design-win count.
• HSD ramp-up to 300,000 to 400,000 units in 2026 and about 1 million+ units in 2027.
• OEM adoption and cost-saving validation after the launch of the integrated cockpit-driving Agentic SoC/OS solution.
• Share-of-wallet gains at BYD, Geely, and Chery, as well as mass-production progress for Chang'an, Dongfeng, and GAC projects.
• Whether the 2026 gross margin target of above 60% can be achieved, and the impact of product-mix changes on gross margin.
• The launch cadence of the J7 platform from late 2026 to early 2027.
• Whether R&D spending translates into order backlog, revenue growth, and operating leverage.