Horizon Robotics 1H26 loss widens but trough may be priced in; re-rating hinges on customer breakthroughs

Overview

This report is Morgan Stanley's quick review of Horizon Robotics' (09660.HK) preliminary 1H26 results. The company reported preliminary 1H26 profit of RMB3.5-4.0 billion, compared with a net loss of RMB5.2 billion in 1H25, but part of the profit came from fair-value changes in financial liabilities. Excluding non-core items, core losses still widened. The report believes the revenue slowdown was not surprising, as management had previously flagged weakness in the domestic market, a slower J6 ramp-up, and the impact of concentrated product launches in 2Q on first-half chip sales.

Core views

The core view is that “the trough is largely priced in, and re-rating depends on customer wins.” Morgan Stanley maintains its Overweight rating and HK$8.70 target price, believing the share price reflects a relatively pessimistic scenario; if the company can secure higher order shares from major customers such as BYD and achieve a breakthrough in HSD2.0, the stock has room for re-rating. Conversely, slower-than-expected penetration of ADAS/AD in China, supply-chain disruptions, or successful OEM development of in-house hardware would pose downside risks.

Analysis framework

The report assesses the outlook based on preliminary 1H26 results, revenue and gross-margin guidance, operating-expense changes, customer-design-in timing, and required chip-revenue growth; valuation uses a probability-weighted DCF, assigning 25%, 50%, and 25% weights to bull, base, and bear cases, respectively.

Methodology notes

• Valuation methodsprobability-weighted DCF

  Probability-weighted DCF

  Valuation applies probability weights of 25% to the bull case, 50% to the base case, and 25% to the bear case; key assumptions include a 12.2% WACC, 1.9 beta, and 3% long-term growth rate.

Asset mapping & comparison

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

• Horizon Robotics (09660.HK)

  Covered company and primary investment target

  Strengths

  Has the potential to gain share in China's ADAS/AD market; revenue comes from product solutions and licensing services; volume growth at key customers such as BYD could drive improvement in chip-driven revenue.

  Weaknesses

  Core losses widened in 1H26, the J6 ramp-up was slow, the domestic market was weak, and first-half chip sales were affected by concentrated product launches in 2Q.

  Comparison

  The report places the company within the China Autos & Shared Mobility coverage universe and assigns an Overweight rating under an industry-relative return framework.

  Risks

  Slower-than-expected adoption of ADAS/AD in China, supply-chain disruptions, successful OEM development of in-house hardware, and pressure on vehicle sales at key customers.

• Major customers including BYD, Li Auto, Geely, and Chery

  Drivers of order and revenue ramp-up

  Strengths

  Sales expansion at these customers is viewed as key to achieving high growth in chip-driven revenue.

  Weaknesses

  Order shares and the pace of model volume ramp-up remain uncertain.

  Comparison

  BYD is specifically identified as one of the potential re-rating catalysts.

  Risks

  If sales at key customers come under pressure or order shares fall short of expectations, recovery in Horizon Robotics' revenue and valuation may be constrained.

Key data

• Preliminary 1H26 profitRMB3.5-4.0 billion1H25 recorded a net loss of RMB5.2 billion; part of the 1H26 profit came from fair-value changes in financial liabilities.
• 1H26 net loss excluding non-core itemsRMB1.4-1.7 billionLoss widened 5%-28% from RMB1.3 billion in 1H25.
• Preliminary 1H26 revenueRMB1.93-2.08 billionUp 25%-35% year over year, driven by product solutions and licensing services.
• Expected 1H26 gross margin60%-66%Flat to down versus 1H25, potentially indicating a higher contribution from product solutions.
• 2026e revenue forecastRMB6.092 billionMorgan Stanley ModelWare table data.
• 2027e revenue forecastRMB9.381 billionMorgan Stanley ModelWare table data.
• 2028e revenue forecastRMB13.300 billionMorgan Stanley ModelWare table data.
• Target price and upsideHK$8.70 / 96%Based on the HK$4.45 closing price on July 21, 2026.

Impact & implications

The report's investment implication is moderately positive: near-term results still face pressure from widening losses and slowing revenue, but these negative factors may already have been absorbed by the market. The valuation focus will subsequently shift from the 1H26 earnings trough to order share, volume growth at key customers, and breakthroughs in advanced intelligent-driving solutions.

Risks

• ADAS/AD penetration growth in China is slower than expected.
• Supply-chain disruptions.
• Successful progress in OEM in-house hardware design, reducing opportunities for external solution providers.
• Pressure on vehicle sales at key Chinese customers.
• Intensifying competition in intelligent driving and potential geopolitical headwinds.

What to watch

• Changes in order shares at major customers such as BYD.
• Breakthroughs and commercialization progress for HSD2.0.
• R&D investment and mass-production ramp-up pace related to J6 and J7.
• Whether chip-driven revenue can achieve more than 80% year-over-year growth.
• The pace of ADAS/AD adoption in China and penetration of intelligent-driving configurations among major automakers.