Cyclical IGBT price recovery, but margin pressure leads to a downgrade to Equal-weight

Overview

This report is Morgan Stanley's company research and earnings review on StarPower Semiconductor Ltd (603290.SS / 603290 CG). The key conclusion is that the IGBT industry price cycle is recovering, and the company's exposure to automotive power semiconductors and product expansion remain attractive over the long term. However, gross margins in the medium term may remain structurally below the previous cycle's trough because of depreciation, raw materials, and pricing pressure, so the rating has been moved to Equal-weight.

Core views

The report argues that the worst stage of the IGBT downcycle is behind us, but recovery does not mean profitability has fully normalized. China EV wholesale sales were down 1% year to date through April, EV ASPs continue to fall, and declining SiC prices have also reduced the relative attractiveness of IGBTs. More than 50% of StarPower's revenue is exposed to automotive applications, which should benefit from long-term electrification, but the company has limited pricing power during periods of customer price cuts and rising costs. Its move toward IPM, SiC, MCU, and intelligent power modules should help reduce reliance on the IGBT price cycle, but industrial MCU is not expected to contribute until 2026, automotive MCU is still in customer qualification, and near-term contribution remains limited.

Analysis framework

The report combines the industry price cycle, EV demand and pricing environment, changes in the company's manufacturing model, product mix upgrades, EPS forecast revisions, and residual income model valuation to assess the stock's risk-reward profile. Morgan Stanley lowers its 2026/27 EPS estimates to reflect weaker gross margin assumptions, while raising the target price to Rmb120 by rolling the valuation base year to 2026, introducing 2028 earnings, and increasing the medium-term growth assumption.

Methodology notes

• Valuation methodologyResidual income model

  Derive base-case value using cost of equity, dividend payout ratio, medium-term growth, and terminal growth assumptions.

  The report uses the residual income model as its base-case valuation method, assuming a cost of equity of 8.2%, beta of 1.04, risk-free rate of 2.0%, risk premium of 6.0%, dividend payout ratio of 80%, medium-term growth rate of 18.0%, and terminal growth rate of 5.5%.

• Research modelMorgan Stanley ModelWare

  Morgan Stanley internal forecasting and valuation framework.

  Unless otherwise stated, the forecast metrics in the report are based on Morgan Stanley ModelWare; e denotes Morgan Stanley Research estimates, and § denotes consensus estimates from Refinitiv Estimates.

• Risk-reward frameworkBull/Base/Bear Case

  Assess share price risk and reward through bull, base, and bear scenarios.

  Bull case value Rmb161, bear case value Rmb55, and base-case target price Rmb120; the bull and bear cases imply 53x and 18x 2027e EPS, respectively, while the base case implies about 45x 2027e P/E.

Asset mapping & comparison

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

• StarPower Semiconductor Ltd equity

  The research target, 603290.SS / 603290 CG.

  Strengths

  High exposure to automotive power semiconductors, benefiting from vehicle electrification; expanding into IPM, SiC, MCU, driver ICs, and intelligent power modules, making the long-term product matrix more complete.

  Weaknesses

  The fab-lite transition creates depreciation burden, price pass-through is limited in a price-cutting automotive environment, and contributions from new businesses take time to materialize.

  Comparison

  The report says its SiC scale lags domestic peers such as UNT and Silan Micro; compared with global power semiconductor peers, Infineon currently has a more complete traction inverter component portfolio.

  Risks

  Declining IGBT content per vehicle, intensifying SiC competition, weak EV demand, inability to restore gross margin, and R&D spending weighing on near-term earnings.

• IGBT business

  The company's core cyclical business and the key variable behind the rating call.

  Strengths

  After about 2.5 years of price declines, there are signs of cyclical recovery. Price increases by foreign suppliers and higher utilization at domestic peers suggest the worst phase may be over.

  Weaknesses

  Domestic capacity expansion has intensified competition, while falling EV ASPs and SiC substitution limit IGBT pricing power.

  Comparison

  Compared with SiC, IGBTs are less attractive in some EV applications, though they are still supported by structural demand in the China IGBT market.

  Risks

  EV wholesale volumes coming in weaker than expected, IGBT content per vehicle declining, and faster SiC price declines accelerating substitution.

• SiC, MCU, IPM and intelligent power modules new businesses

  The company's strategic direction to reduce IGBT cyclicality and expand long-term revenue sources.

  Strengths

  Industrial MCU is expected to start contributing in 2026, and SiC MOS and IPM can support automotive and industrial applications. The long-term goal is to become an intelligent power module supplier before 2030.

  Weaknesses

  Automotive MCU development cycles are long, customer qualification is still ongoing, near-term revenue contribution is limited, and R&D expenses may pressure profit.

  Comparison

  Compared with leading global IDMs, the company still focuses mainly on power modules and has not yet built a complete traction inverter component portfolio.

  Risks

  Design wins taking longer than expected, product specifications or reliability validation falling short, and insufficient scale limiting operating leverage.

Key data

• Rating changeOverweight -> Equal-weightThe report says “Downgrade to EW”, but the target price was raised from Rmb105 to Rmb120.
• Target priceRmb120.00Up 14% from the previous Rmb105, mainly due to introducing 2028 EPS, lifting the medium-term growth rate to 18%, and rolling the valuation base year from 2025 to 2026.
• Closing price and implied upside/downsideRmb124.46; -4%The chart shows a 2026-05-14 closing price of Rmb124.46, with the target price implying about -4% downside.
• 2026/27 EPS revisionDown 52%/30%Mainly due to weaker gross margin assumptions; 2028 forecasts were also introduced.
• Forecast EPS2025/2026e/2027e/2028e: Rmb1.69 / 1.57 / 2.66 / 3.992026e EPS declines first and then recovers materially by 2028e.
• Forecast revenue2025/2026e/2027e/2028e: Rmb4,012mn / 4,850mn / 5,799mn / 7,318mnThe report expects revenue to continue growing, partly reflecting industrial MCU contributions.
• Valuation multipleNTM P/E about 63x; historical range 27-101xThe report considers valuation broadly fair.
• Gross margin viewAround 25% over the next three yearsThe report expects gross margins to remain structurally below the prior trough of around 30%, mainly due to depreciation burden.
• Depreciation costAbout Rmb434mn in 20252025 depreciation is about twice 2024 levels, reflecting fixed-cost pressure from the fab-lite model.
• Automotive exposureAbout 50%+The company has relatively high automotive exposure among Chinese power semiconductor companies, but falling EV ASPs make it hard for suppliers to raise prices.
• China EV wholesale salesDown 1% year on year in Jan-Apr 2026Including exports; the report cites this as a demand headwind for the IGBT recovery.
• BYD retail ASP indexAbout 0.82 in Apr 2026, with Jan 2024 as the 1.00 baseThe chart shows roughly an 18% cumulative decline, reflecting EV pricing pressure.
• Bull/bear scenariosRmb161 / Rmb55The bull case assumes 2025-2028e revenue CAGR above 30% and 2026 gross margin above 30%; the bear case assumes revenue CAGR of about 10% and 2026 gross margin below 20%.

Impact & implications

The investment implication for the stock is neutral. The industry cycle improvement and product expansion provide long-term support, but earnings leverage is weakened by lower gross margins, depreciation, and price-cutting pressure from the automotive supply chain. The higher target price reflects better long-term growth assumptions, while the rating downgrade indicates that the current share price already captures much of the recovery outlook. For investors, the key near-term question is not whether revenue can recover, but whether gross margins can return to a level that supports valuation.

Risks

• EV sales and ASPs continue to decline, putting additional pressure on automotive semiconductor suppliers.
• SiC device prices fall further and replace IGBTs, weakening IGBT demand and pricing power.
• Depreciation burden keeps rising under the fab-lite model, leaving gross margins structurally below historical troughs.
• Metal, substrate, and mature-node foundry costs rise, and the company cannot fully pass them through to customers.
• New businesses such as industrial MCU, automotive MCU, SiC, and IPM contribute more slowly than expected while R&D spending rises.
• If revenue scale remains insufficient, operating leverage will not materialize and operating margins may stay under pressure.

What to watch

• Whether IGBT prices continue to recover and whether domestic peers keep utilization at high levels.
• Changes in China EV wholesale sales, exports, and EV ASPs, especially how automotive customer price cuts feed through the supply chain.
• Whether gross margins can recover from the low base in 2026-2028 and whether depreciation as a share of revenue declines.
• The pace of revenue contribution from industrial MCU in 2026, and progress in automotive MCU customer validation and design wins.
• The number and scale of design wins for SiC MOS and SiC modules with automotive OEMs.
• Changes in mature-node foundry pricing, metal and substrate costs, and the company's ability to pass on costs.
• Whether the market continues to assign a valuation near or above 45x 2027e P/E.