Delayed submarine cable revenue recognition weighed on 2Q performance; realization is expected to accelerate in 2H

Overview

Orient Cable maintained relatively rapid revenue and profit growth in 1H26, but 2Q earnings performance was lackluster. 2Q revenue increased 28% YoY, while net profit grew only 1% YoY, mainly due to the revenue mix skewing toward lower-gross-margin traditional land cables and slower-than-expected revenue recognition for some offshore wind submarine cable projects. Nomura believes the high balance of goods shipped and ample backlog mean the related revenue may be gradually recognized in 2H, and therefore maintains a positive view.

Core views

The weakness in 2Q is more likely a temporary mismatch caused by the timing of project delivery and acceptance rather than a significant weakening of end demand. Domestic submarine cable revenue is typically recognized after installation is completed and accepted by the customer. As of end-1H, CNY1.6bn of goods shipped had not yet been recognized as revenue, significantly higher than CNY423mn at end-2025. Meanwhile, CNY9.1bn of the company’s CNY17.9bn backlog came from submarine and high-voltage cables, providing high visibility for subsequent growth. If key offshore wind projects are delivered smoothly in 2H, gross margin and earnings growth are expected to recover sequentially.

Analysis framework

The report uses YoY and QoQ results comparisons, breakdowns of revenue and gross margin by business segment, analysis of goods shipped and backlog, and combines these with project revenue recognition rules to assess the reasons for short-term performance weakness; for valuation, it determines the target price based on 2027E EPS and the historical average P/E ratio.

Methodology notes

• Results analysisYoY and QoQ analysis

  Compare changes in revenue, profit, and gross margin across different periods

  Identify growth trends and quarterly earnings pressure through YoY and QoQ data for 1H26 and 2Q.

• Operating quality analysisOrder and revenue recognition analysis

  Assess future revenue visibility by combining backlog, goods shipped, and acceptance conditions

  Domestic submarine cables usually recognize revenue after installation and customer acceptance, so an increase in the balance of goods shipped may represent projects that have been shipped but not yet included in current-period revenue.

• Valuation methodsForward P/E method

  Target price equals forecast EPS multiplied by the target P/E ratio

  The CNY79 target price is based on 22x 2027E P/E and 2027E EPS of CNY3.59, with the target multiple consistent with the company’s historical trading average.

Asset mapping & comparison

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

• Ningbo Orient Wires & Cables (603606.SS)

  A-share listed company directly covered by the report

  Strengths

  Ample backlog, with a relatively high proportion of submarine and high-voltage cable orders; revenue and profit maintained growth in 1H; goods shipped provide potential support for subsequent revenue recognition.

  Weaknesses

  2Q profit growth significantly lagged revenue growth, changes in revenue mix pressured gross margin, and the project acceptance system makes quarterly performance relatively volatile.

  Comparison

  The report gives the current valuation at 11.4x FY27E P/E, below the 22x 2027E P/E used for the target price; the target multiple references the company’s historical trading average.

  Risks

  Extended order delivery cycles, metal price fluctuations, intensified industry competition, and weaker-than-expected revenue recognition in 2H.

Key data

• 1H26 revenueCNY5.8bnUp 31% YoY
• 1H26 net profitCNY565mnUp 19% YoY
• 1H26 gross margin19.4%Up 1.1 percentage points YoY
• 2Q26 revenueCNY2.9bnUp 28% YoY and 1% QoQ
• 2Q26 net profitCNY193mnUp 1% YoY and down 48% QoQ
• 2Q26 gross margin15.4%Down 0.9 percentage points YoY and 8.2 percentage points QoQ
• 2Q power engineering and equipment cable revenueCNY1.8bnUp 38% YoY
• 2Q submarine and high-voltage cable revenueCNY874mnUp 15% YoY, possibly affected by delayed revenue recognition
• 2Q marine equipment and engineering revenueCNY232mnUp 10% YoY
• Balance of goods shippedCNY1.6bnAs of end-1H26; CNY423mn at end-2025
• BacklogCNY17.9bnAs of August 3, 2026, of which submarine and high-voltage cable orders were CNY9.1bn
• Target price valuation22x 2027E P/EBased on 2027E EPS of CNY3.59
• Current valuation11.4x FY27E P/ETrading valuation disclosed in the report

Impact & implications

If the CNY1.6bn of goods shipped is recognized as revenue in 2H26 as installation and acceptance are completed, the rebound in the share of the submarine cable business may drive improvements in both revenue growth and overall gross margin. Ample submarine and high-voltage cable orders enhance earnings visibility, but actual realization still depends on project construction, customer acceptance, and policy progress. The target price implies substantial upside, although Nomura also notes that earnings forecasts remain under review.

Risks

• Policy changes or demand shocks could cause backlog delivery cycles to be longer than expected.
• Significant fluctuations in metal prices such as copper, with the company unable to hedge effectively.
• Further intensification of competition in the power cable industry, pressuring prices and gross margins.
• Delays in installation or customer acceptance of offshore wind projects, preventing goods shipped from being recognized as revenue as expected.
• Earnings forecasts remain under review, and subsequent adjustments may affect valuation and the target price.

What to watch

• Delivery, installation, and customer acceptance progress for key offshore wind projects in 2H26.
• The speed at which CNY1.6bn of goods shipped is converted into revenue.
• Sequential changes in the revenue share and gross margin of the submarine and high-voltage cable business.
• Additions, execution, and cancellations in the CNY17.9bn backlog.
• Prices of major raw materials such as copper and the effectiveness of hedging.
• Valuation and target price adjustments after Nomura completes its earnings forecast review.