Raycus Laser's second-quarter gross margin beat expectations, but Goldman Sachs maintains Sell on high valuation

Overview

This report assesses Raycus Laser's 2Q26 results, the drivers of its gross margin improvement, and the implications for earnings forecasts and valuation. Goldman Sachs acknowledges the profit improvement driven by product-mix upgrades and demand from new applications, but believes revenue growth, the long-term potential for market-share gains, and the near-term contribution from new businesses remain relatively limited, while the current valuation does not support a more positive rating.

Core views

Raycus Laser's 2Q26 results were consistent with its July 19 preliminary results. Quarterly revenue, gross profit, EBIT, and net profit were Rmb1,051mn, Rmb284mn, Rmb91mn, and Rmb117mn, respectively, representing year-over-year increases of 11%, 57%, 607%, and 109%, respectively, with the year-over-year growth rates benefiting from a relatively low base; sequentially, they increased 22%, 50%, 100%, and 180%, respectively. Compared with Goldman Sachs' forecasts, revenue was broadly in line, while gross profit, EBIT, and net profit were 42%, 393%, and 63% higher, respectively. EPS was 0.21, up 110% year over year and 180% quarter over quarter, and 63% above Goldman Sachs' forecast. Gross margin, operating margin, and net margin in 2Q26 were 27%, 9%, and 11%, respectively, improving by 8, 7, and 5 percentage points year over year and exceeding Goldman Sachs' forecasts by 8, 7, and 4 percentage points, respectively, indicating that the quarterly beat was mainly driven by margins rather than revenue. Operationally, the company delivered 103.8 thousand lasers in 1H26, up 24% year over year; welding products and >10kW power products increased 46% and 23% year over year, respectively, while the blended average selling price declined 10% year over year. In traditional applications, the company continued to secure bulk orders in shipbuilding and portable welding. Goldman Sachs believes the primary reason for the gross margin beat was the product-mix upgrade: the gross margin of pulsed lasers increased 8 percentage points year over year to 31% in 1H26, driven by rapid growth in precision-manufacturing end markets such as semiconductors, 3D printing, and the AIDC supply chain. Meanwhile, overseas business expansion increased selling expenses, while higher finance costs and foreign-exchange losses slightly weighed on operating and net margins. Based on the 2Q26 results and gross margin improvement, Goldman Sachs left its 2026E-30E revenue forecasts broadly unchanged but raised its average annual EPS forecasts for the period by 13%. The 12-month target price was increased from Rmb14.8 to Rmb16.7, still based on 25x 2027E P/E. Despite raising its earnings forecasts and target price, Goldman Sachs maintained its Sell rating: the stock currently trades at 68x 2026E P/E, versus a 23% earnings CAGR for 2026E-30E, and its recent valuation is also significantly higher than those of other laser-industry-chain companies within Goldman Sachs' China industrial technology coverage. From a medium-term industry and competitive perspective, Raycus Laser is China's leading domestic fiber-laser company, with Goldman Sachs estimating its 2025 domestic market share at 23%. Goldman Sachs forecasts a 7% CAGR for China's fiber-laser market in 2026E-30E, with high-power applications growing faster than low-power applications; the company should continue to benefit from market growth and domestic substitution. However, the potential for further market-share gains may be limited because the market that has not yet been substituted mainly consists of high-end customers using IPG products, which have higher average selling prices but lower sales volumes. Goldman Sachs is positive on the development of new technologies such as ultrafast lasers, laser welding, and laser cleaning, as well as new applications such as defense, but believes these emerging businesses may continue to make only a limited near-term earnings contribution. Therefore, the product-mix improvement has not changed its view that long-term net-profit growth will be relatively moderate and that the near-term valuation is excessive.

Analysis framework

Goldman Sachs first compared 2Q26 revenue, profit, and margins on a year-over-year and sequential basis, as well as against the preliminary results and its own forecasts, determining that the beat was mainly attributable to gross margin. It then analyzed margin changes through shipments, average selling prices, product mix, and downstream applications, while assessing the effects of overseas expansion costs and foreign-exchange losses. On this basis, it updated its 2026E-30E earnings forecasts and then determined the target price and rating by considering industry growth, the scope for domestic substitution, the competitive landscape, valuations of other companies in the same industry chain, and 2027E P/E.

Methodology notes

• Valuation methodologyP/E and PEG valuation

  Comparison of target P/E valuation with growth

  The report derives its Rmb16.7 12-month target price using 25x 2027E P/E and compares the current 68x 2026E P/E with the 23% earnings CAGR for 2026E-30E and other laser-industry-chain stocks to assess whether the valuation is reasonable.

• Industry/sector analysis frameworkVolume-price decomposition

  Decomposition of shipments and blended average selling price

  The report examines both the 24% year-over-year increase in 1H26 shipments and the 10% year-over-year decline in the blended average selling price to distinguish the differing effects of volume expansion and pricing pressure on revenue and earnings.

• Industry/sector analysis frameworkSupply-demand framework

  Analysis of market growth, domestic substitution, and remaining substitution potential

  The report uses the 7% average annual growth forecast for China's fiber-laser market in 2026E-30E as its demand basis while assessing domestic substitution, the structure of the remaining market among IPG's high-end customers, and price competition in continuous-wave lasers to evaluate Raycus Laser's potential for further market-share gains.

• Company fundamentals and financial framework

  Results variance analysis and earnings forecast revisions

  The report compares actual results with Goldman Sachs' forecasts item by item and, after identifying the gross margin beat, raises its 2026E-30E EPS forecasts while leaving revenue forecasts broadly unchanged.

Asset mapping & comparison

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

• Raycus Laser (300747.SZ)

  The report's primary research subject; Goldman Sachs recognizes its gross margin improvement and growth in new applications but maintains its Sell rating due to the elevated valuation.

  Strengths

  China's leading domestic fiber-laser company, with an estimated 23% domestic market share in 2025; its product mix is upgrading, pulsed-laser gross margin is improving, and demand is supported by shipbuilding, portable welding, semiconductors, 3D printing, and the AIDC supply chain.

  Weaknesses

  The blended average selling price declined 10% year over year, while continuous-wave lasers face price competition; the remaining domestic-substitution market mainly consists of IPG's high-end customers, which have higher selling prices but lower volumes, limiting the potential for further market-share gains; the near-term earnings contribution from new businesses may be limited.

  Comparison

  The stock's recent valuation is significantly higher than those of other laser-industry-chain companies within Goldman Sachs' China industrial technology coverage.

  Risks

  Upside risks to the Sell thesis include faster-than-expected overseas expansion, faster-than-expected progress in the defense business, and weaker-than-expected pricing pressure.

Key data

• 2Q26 revenueRmb1,051mnUp 11% year over year and 22% quarter over quarter, with a 0% variance versus Goldman Sachs' forecast
• 2Q26 gross profitRmb284mnUp 57% year over year and 50% quarter over quarter, and 42% above Goldman Sachs' forecast
• 2Q26 EBITRmb91mnUp 607% year over year and 100% quarter over quarter, and 393% above Goldman Sachs' forecast
• 2Q26 net profitRmb117mnUp 109% year over year and 180% quarter over quarter, and 63% above Goldman Sachs' forecast
• 2Q26 EPS0.21Up 110% year over year and 180% quarter over quarter, and 63% above Goldman Sachs' forecast
• 2Q26 gross margin/operating margin/net margin27%/9%/11%Up 8/7/5 percentage points year over year, respectively, and 8/7/4 percentage points above Goldman Sachs' forecasts, respectively
• 1H26 laser deliveries103.8k unitsUp 24% year over year
• 1H26 growth in welding products/>10kW power products+46%/+23%Both are year-over-year growth rates
• 1H26 blended average selling price-10%Down year over year
• 1H26 pulsed-laser gross margin31%Up 8 percentage points year over year
• 2025 domestic market share23%Goldman Sachs estimate
• China fiber-laser market 2026E-30E CAGR7%Goldman Sachs expects high-power applications to grow faster than low-power applications
• Average annual 2026E-30E EPS forecast revision+13%Revenue forecasts are broadly unchanged, with the revision reflecting 2Q26 results and gross margin improvement
• 12-month target priceRmb16.7Previously Rmb14.8, based on 25x 2027E P/E
• 2026E P/E68xCompared with a 23% earnings CAGR for 2026E-30E

Impact & implications

The product-mix upgrade and improved precision-manufacturing demand enhanced gross margin, prompting Goldman Sachs to raise its earnings forecasts and target price; however, revenue forecasts did not increase materially, the near-term earnings contribution from emerging businesses remains limited, and the scope for market-share gains is constrained by the structure of the remaining high-end market. Goldman Sachs therefore believes the results improvement is insufficient to offset the valuation concern and maintains its Sell rating.

Risks

• Overseas business expansion may be faster than expected.
• Progress in the defense business may be faster than expected.
• Industry pricing pressure may be weaker than expected.

What to watch

• Continue to monitor price competition in the continuous-wave laser market.
• Monitor whether demand from high-value-added new end markets such as the low-altitude economy, semiconductors, AIDC, and precision manufacturing can be sustained.