Xusheng's 1Q26 results met expectations, with energy storage and overseas business driving gross margin recovery

Overview

This report is Deutsche Bank's earnings review and forecast revision for Xusheng. The report believes that the company's full-year 2025 results were slightly below expectations, mainly because higher operating expenses such as employee compensation and R&D spending compressed operating margin; however, 1Q26 results were in line with expectations, with a higher contribution from energy storage and overseas business driving a rebound in gross margin. Despite the target price increase due to lower capex assumptions, Deutsche Bank still maintains a "Sell" rating.

Core views

The core view is that Xusheng's near-term earnings quality is still affected by expense investment and declining gross margins in certain traditional auto/mold businesses, but the energy storage business has become the main structural bright spot. In 2025, energy storage revenue increased 96% YoY, and energy storage gross margin rose 11.7 percentage points to 40.3%; overall gross margin recovered to 22.9% in 1Q26, benefiting from the ramp-up of high-margin energy storage business and a higher contribution from overseas revenue. However, Deutsche Bank still lowered its 2026 net profit forecast by 11%, indicating that its view on earnings sustainability remains relatively cautious.

Analysis framework

The report uses a combination of earnings decomposition and DCF valuation: it first analyzes changes in revenue, profit, expenses, and segment gross margins in 2025 and 1Q26, and then updates the DCF target price based on assumptions including capex, cost of debt, tax rate, capital structure, WACC, and terminal growth rate.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  Deutsche Bank believes Xusheng is still in a growth stage, and using a DCF method with a 6-year forecast period is more suitable to reflect the maturation process of electrification and smartization trends in China's auto industry.

• Earnings AnalysisGross margin decomposition

  Analyze gross margin contribution by business segment

  The report discusses changes in gross margins for the automobile, molds, and energy storage businesses separately to identify the offsetting relationship between pressure on traditional businesses and improvement in the energy storage business on overall gross margin.

Asset mapping & comparison

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

• 603305

  Research target

  Strengths

  Rapid growth in the energy storage business, with 2025 revenue up 96% YoY; energy storage gross margin increased to 40.3%; overall gross margin recovered in 1Q26; secured a long-term nomination from a North American NEV customer.

  Weaknesses

  2025 net profit fell 12% YoY, and rising operating expenses compressed operating margin; gross margins in the automobile and mold businesses both declined.

  Comparison

  2025 overseas gross margin was 29.3%, higher than domestic gross margin of 13.3%; energy storage gross margin was significantly higher than that of the automobile and mold businesses.

  Risks

  Customer sales below expectations, price competition, persistently high expense investment, and uncertainty over capex and the mass-production progress of new projects.

• China's new energy vehicle industry chain

  Downstream demand and order source

  Strengths

  Electrification and smartization trends bring long-term demand for aluminum alloy auto parts, powertrains, body parts, and battery housings.

  Weaknesses

  Downstream automakers may require suppliers to cut prices, squeezing the gross margins of parts companies.

  Comparison

  Xusheng not only serves Tesla's global business, but also supplies Chinese NEV makers such as BYD, NIO, GAC AION, XPeng, Li Auto, and Leapmotor.

  Risks

  Fluctuations in end-market sales, intensified industry competition, changes in subsidy policies, and customer concentration risk.

Key data

• 2025 net profitRMB 365 million, down 12% YoYSlightly below market expectations.
• 2025 revenueRMB 4.5 billion, up 1% YoYOverall revenue was broadly flat.
• 2025 operating margin10.1%, down 2.4 percentage points YoYMainly affected by rising administrative and R&D expenses.
• 2025 energy storage revenueRMB 569 million, up 96% YoYReflects rapid ramp-up in the energy storage business.
• 2025 overall gross margin20.3%, flat YoYDeclines in gross margins of the automobile and mold businesses were offset by improvement in the energy storage business.
• 2025 energy storage gross margin40.3%, up 11.7 percentage points YoYSignificantly higher than traditional businesses.
• 1Q26 net profitRMB 125 million, up 31% YoY and 92% QoQIn line with market expectations.
• 1Q26 gross margin22.9%, up 2.1 percentage points YoY and 6.0 percentage points QoQBenefited from improved product mix, a higher share of energy storage business, and rising overseas contribution.
• North American NEV customer nominationapproximately RMB 7.8 billion, term of 8 yearsCovers powertrain, body parts, subframes, and battery housings, with mass production expected to begin by the end of 2026.
• DCF target priceRMB 13.5, previous RMB 11.8The target price increase is mainly related to the reduction in the capex forecast.
• 2026 net profit forecast revisiondown 11%Reflects earnings forecast revisions after the latest results.
• 2026 capex forecastdown 49% to RMB 500 millionClose to the 2025 level of RMB 439 million.

Impact & implications

In terms of investment implications, the energy storage business and overseas customer expansion have enhanced Xusheng's structural growth profile and margin elasticity, but expense investment, customer price-cut pressure, and declining gross margins in the traditional automobile/mold businesses still remain constraints. The higher target price does not change Deutsche Bank's negative rating stance, indicating that the valuation improvement is driven more by changes in DCF assumptions rather than a comprehensive turn in the core earnings trend.

Risks

• If downstream customer sales are stronger than expected, this could become an upside risk to the share price, contrary to the direction of the "Sell" rating.
• If the government's trade-in subsidy policy reduces competitive intensity and leads to higher selling prices, profitability may outperform expectations.
• The traditional automobile and mold businesses face pressure from customer price-cut demands and rising depreciation expenses.
• R&D investment, employee compensation, and other operating expenses may continue to rise, potentially continuing to suppress margins.
• There is uncertainty regarding the timing of mass production, scale ramp-up, and profit contribution of newly awarded customer projects.

What to watch

• Whether revenue growth and gross margin in the energy storage business can remain at high levels.
• Changes in the share of overseas revenue and its contribution to overall gross margin.
• The mass-production progress of the approximately RMB 7.8 billion nominated project from a North American NEV customer.
• Whether 2026 capex can be controlled at around RMB 500 million.
• Whether the growth of administrative and R&D expenses slows.
• Whether gross margins in the automobile and mold businesses continue to face pressure.