Goertek's second-quarter gross margin beat expectations, but insufficient new projects limit medium-term growth potential

Overview

This report reviews Goertek's 2Q26 results and assesses the growth prospects of its acoustic components, smart hardware, AI glasses, wearables, and gaming-console businesses. JPMorgan believes the second-quarter gross-margin improvement was better than expected, but the pipeline of new projects, AI-glasses demand, and gaming-console progress remain insufficient to form a new growth engine, and therefore maintains its Neutral rating.

Core views

Goertek's 2Q26 revenue was Rmb21.4bn, broadly in line with JPMorgan's estimate; gross margin reached 15.2%, up 1.4 percentage points year over year and 0.9 percentage points quarter over quarter, and 2.1 percentage points above the firm's estimate. The report primarily attributes this improvement to higher production efficiency and product-mix optimization, particularly in the acoustic-components and smart-hardware segments. Revenue from the two businesses was broadly flat year over year in 1H26 and accounted for 19% and 50% of total company revenue, respectively, but their gross margins rose by 1.4 percentage points and 2.1 percentage points year over year to 24.9% and 13.6%, respectively, indicating that the period's earnings improvement came more from efficiency and business mix than from rapid revenue expansion. The demand environment presents both support and constraints. JPMorgan's supply-chain checks indicate resilient demand for Apple's new iPhone products at the beginning of 3Q26, which is expected to support the profitability of Goertek's Apple components business in 2H26. The company is also no longer reliant on a single product, with earnings sources spanning smart acoustics, AI glasses, smart wearables, gaming consoles, and other categories. Meanwhile, the report describes Goertek as a leading global VR-headset assembler and recognizes its technological capabilities within the AI-glasses supply chain. However, the report believes diversification has yet to translate into a sufficiently strong new growth engine. The company's R&D spending declined 3% year over year in 1H26, while revenue grew 7% year over year, and JPMorgan views this divergence as a signal that the future pipeline of new projects may be insufficient. Smart hardware has become the largest revenue source, but AI-glasses demand was weaker than expected, the launch timing of the gaming-console project was delayed, and new gaming-console products could also dilute overall earnings due to initially low margins. These factors imply that even if the Apple business remains stable, the company's earnings upside is still limited. Earnings forecasts reflect this moderate-growth assessment. JPMorgan raises its 2026E adjusted earnings per share forecast by 4.1%, from Rmb1.00 to Rmb1.04. It forecasts adjusted earnings per share of Rmb1.11, Rmb1.04, Rmb1.16, and Rmb1.33 for 2025A, 2026E, 2027E, and 2028E, respectively, corresponding to a 6.6% year-over-year decline in 2026E, 11.7% growth in 2027E, and 14.9% growth in 2028E. Revenue is projected at Rmb96,550mn, Rmb110,313mn, Rmb133,575mn, and Rmb142,216mn over the same period, with growth of 14.3%, 21.1%, and 6.5% in 2026E, 2027E, and 2028E, respectively. Considering the outlook across all businesses, the report forecasts approximately 6% annual earnings growth for 2025-28E and regards growth as still relatively limited. Regarding valuation and rating, the report notes that the share price has fallen approximately 19% year to date, underperforming the Shenwan Electronics Index by 49 percentage points; the performance table shows an absolute year-to-date return of -19.7%. JPMorgan believes the market already reasonably reflects the company's leading technological capabilities in the AI-glasses supply chain, but sees no clear share-price catalyst over the next 6 to 12 months due to low visibility into new growth momentum. The report extends the target-price horizon from December 2026 to June 2027 and raises the target price from Rmb24 to Rmb25. At the same time, given softer growth, it lowers the applied one-year forward P/E multiple from 21x to 20x. This 20x valuation is in line with the peer average, with the peer benchmark using JPMorgan's forecasts for Luxshare Precision and Huaqin Technology and Bloomberg consensus forecasts for other Chinese peers. Based on the current price of Rmb23.07 as of August 25, 2026, the report maintains its Neutral rating.

Analysis framework

The report first compares 2Q26 revenue and gross margin with the firm's estimates and explains the source of the upside through the revenue contribution and gross-margin changes of acoustic components and smart hardware. It then combines Apple supply-chain checks, AI-glasses demand, gaming-console project progress, and changes in R&D spending to assess the pipeline of new projects and the sustainability of growth. Finally, it adjusts earnings forecasts accordingly and determines the target price using a one-year forward P/E and Chinese peer valuations.

Methodology notes

• Valuation MethodP/E and PEG Valuation

  One-year forward P/E valuation

  The report applies a 20x P/E multiple to expected earnings over the next year and references the average valuation of Chinese peers to determine its June 2027 target price of Rmb25. Due to softer growth, the applied multiple was reduced from the previous 21x.

• Industry/Sector Analysis FrameworkUpstream, Midstream, and Downstream Supply-Chain Transmission

  Supply-chain demand checks

  JPMorgan uses supply-chain checks to assess the resilience of demand for Apple's new iPhone products in 3Q26 and then translates changes in end demand into 2H26 earnings expectations for Goertek's Apple components business.

• Corporate Fundamentals and Financial Framework

  Segment gross-margin and product-mix analysis

  The report combines the revenue contribution, revenue growth, and gross-margin changes of acoustic components and smart hardware to determine that the second-quarter margin improvement primarily came from efficiency gains and product-mix optimization rather than rapid revenue growth.

Asset mapping & comparison

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

• Goertek (002241.SZ)

  The primary company covered in this report; 2Q26 gross margin was better than expected, but medium-term growth is constrained by an insufficient pipeline of new projects and weaker demand in certain end markets.

  Strengths

  A leading global VR-headset assembler; improved efficiency and gross margins in acoustic components and smart hardware; resilient demand in the Apple business; a product portfolio spanning smart acoustics, AI glasses, wearables, and gaming consoles.

  Weaknesses

  1H26 R&D spending declined 3% year over year; AI-glasses demand was weaker than expected; the gaming-console project was delayed and could dilute margins; visibility into new growth momentum is low.

  Comparison

  The target price applies a 20x one-year forward P/E, in line with the average for Chinese peers. The peer benchmark includes JPMorgan's forecasts for Luxshare Precision and Huaqin Technology and Bloomberg consensus forecasts for other Chinese peers.

  Risks

  Upside could come from better-than-expected VR demand or the emergence of new businesses; downside could arise from lower market share or average selling prices in Apple acoustic projects, uncertainty in VR/AR demand, and lower-than-expected margins on new projects.

Key data

• 2Q26 RevenueRmb21.4bnBroadly in line with JPMorgan's estimate.
• 2Q26 Gross Margin15.2%Up 1.4 percentage points year over year and 0.9 percentage points quarter over quarter, and 2.1 percentage points above the firm's estimate.
• 1H26 Acoustic Components19% of revenue; 24.9% gross marginRevenue was broadly flat year over year, while gross margin rose 1.4 percentage points year over year.
• 1H26 Smart Hardware50% of revenue; 13.6% gross marginRevenue was broadly flat year over year, while gross margin rose 2.1 percentage points year over year.
• 1H26 Changes in R&D and RevenueR&D spending -3% YoY; revenue +7% YoYThe report views the divergence as a signal that the subsequent pipeline of new projects may be insufficient.
• 2026E Adjusted EPS RevisionRaised from Rmb1.00 to Rmb1.04An increase of 4.1%.
• Adjusted EPS Forecasts2025A/2026E/2027E/2028E: Rmb1.11/Rmb1.04/Rmb1.16/Rmb1.33Corresponding growth rates for 2026E, 2027E, and 2028E are -6.6%, +11.7%, and +14.9%, respectively.
• Revenue Forecasts2025A/2026E/2027E/2028E: Rmb96,550mn/Rmb110,313mn/Rmb133,575mn/Rmb142,216mnRevenue growth rates for 2026E, 2027E, and 2028E are 14.3%, 21.1%, and 6.5%, respectively.
• 2025-28E Earnings Growth6%JPMorgan's forecast annual growth rate for the period.
• Share-Price PerformanceApproximately -19% year to date; reported absolute return -19.7%The body text states that the stock underperformed the Shenwan Electronics Index by 49 percentage points.
• Target Price and ValuationRmb25; 20x one-year forward P/EThe target-price horizon is June 2027; the previous target price was Rmb24 with a December 2026 horizon, and the previous valuation multiple was 21x.

Impact & implications

The report believes Goertek's current earnings quality is stronger than the market had feared due to efficiency gains and product-mix improvements, while the Apple business and diversified product portfolio also provide some support. However, margin improvement cannot substitute for growth from new projects. Lower R&D investment, cooling AI-glasses demand, gaming-console delays, and potential margin dilution mean that 2025-28E earnings growth is forecast at only approximately 6%, weakening the visibility of share-price catalysts over the next 6 to 12 months. Therefore, although the target price rises to Rmb25 due to the extended time horizon, the valuation multiple is reduced from 21x to 20x, and the rating remains Neutral.

Risks

• Better-than-expected VR demand could represent upside risk to the rating and target price.
• Successful development of new businesses could represent upside risk to the rating and target price.
• Apple acoustic projects could experience market-share losses or declines in average selling prices.
• Demand for VR/AR products is uncertain.
• New projects could result in lower-than-expected margins.

What to watch

• Monitor the resilience of demand for Apple's new iPhone products in 3Q26 and its support for the profitability of the Apple components business in 2H26.
• Monitor whether AI-glasses demand improves and whether the company's technological capabilities can translate into actual projects and revenue.
• Monitor the launch timing of the gaming-console project and the impact of new products on overall margins.
• Monitor R&D spending trends and the pipeline of new projects to assess the visibility of a new growth engine.
• Monitor changes in VR demand, market share in Apple acoustic projects, and average selling prices.
• Monitor whether clear business catalysts not currently identified in the report emerge over the next 6 to 12 months.