StarPower (603290) Report Interpretation

Overview

Citi maintains a Neutral view on StarPower after materially lowering its earnings outlook and target price. The report sees structural demand opportunities in Chinese supply localization, AI data centers and SiC products, but expects industry oversupply, price competition and higher input costs to constrain profitability in 2026-27.

Core views

Citi maintains its Neutral rating and lowers its target price to Rmb90 from Rmb110. The firm cut 2026E and 2027E EPS forecasts by 72% and 61%, respectively, reflecting weaker revenue and margin assumptions amid persistent pricing competition. It expects StarPower's earnings to remain under pressure through 2026-27, even as AI data-center demand rises and the company expands its SiC MOSFET offering. The central operating issue is intensified domestic competition in power semiconductors. StarPower remains a major IGBT-module supplier and may benefit from China's supply-localization trend, but additional Chinese capacity is expected to keep IGBT and SiC pricing under pressure. Rising material and foundry costs have compounded the problem: gross profit margin fell to 20.6% in 1H26 from 29.7% in 1H25. The company is broadening its SiC MOSFET products, but module products still represented 98% of 1H26 revenue, leaving earnings heavily exposed to the pressured module business. Citi's revised forecasts illustrate the expected trough and recovery path. It forecasts 2026E revenue of Rmb4.302bn, gross margin of 21.5%, and net profit of Rmb191m; revenue is expected to rise to Rmb5.173bn and net profit to Rmb373m in 2027E, then to Rmb6.093bn and Rmb548m in 2028E. The forecast assumes revenue growth of 7%, 20% and 18% in 2026E, 2027E and 2028E, respectively, with gross margin recovering from 21.5% to 24.0% and 25.4%. Citi's 2026E/27E revenue forecasts are 14%/13% below its prior estimates, while 2026E/27E gross-profit forecasts are 34%/30% lower. The Rmb90 target price is based on 39x 2028E P/E, unchanged as a multiple but rolled forward from 39x 2026E P/E. Citi uses 2028E because it expects profitability to improve over time as SiC MOSFET sales and emerging data-center demand develop, while viewing 2026-27 earnings as depressed. The selected multiple is 1 standard deviation above StarPower's three-year average, reflecting the AI-driven upcycle for power discretes. Citi states that persistent IGBT pricing pressure is already well recognized in the share price, supporting a Neutral rather than negative stance. The report frames outcomes through bull, base and bear operating assumptions. The bull case assumes 2026E-28E revenue growth of 10%/25%/20%, gross margins of 22%/25%/26%, and 46x 2028E P/E. The base case assumes 7%/20%/18% revenue growth and 21.5%/24%/25% gross margins. The bear case assumes 5%/17%/16% revenue growth and 21%/22%/23% gross margins, highlighting the sensitivity of results to demand, pricing and margin recovery.

Analysis framework

Citi revises revenue, margin and earnings estimates based on competitive pricing, cost pressure, product mix and end-market demand. It compares revised forecasts with prior estimates and consensus, then values StarPower on 2028E P/E to reflect a normalized earnings period rather than the expected 2026-27 trough.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation

  Citi derives its Rmb90 target price from a 39x 2028E P/E multiple, using 2028 as a more normalized earnings year.

• Industry AnalysisSupply-demand framework

  Supply-demand and capacity analysis

  The report links new domestic capacity, industry capex, AI infrastructure demand, EV demand and renewable-energy demand to power-semiconductor pricing and profitability.

• Industry AnalysisVolume-price decomposition

  Revenue and gross-margin forecast analysis

  Citi separates expected sales growth from pricing and gross-margin pressure when revising revenue, gross profit and EPS forecasts.

Asset mapping & comparison

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

• StarPower (603290.SS)

  Primary covered company; a Chinese supplier of IGBT modules expanding into automotive SiC.

  Strengths

  Potential beneficiary of supply localization, AI/data-center infrastructure demand and growing SiC MOSFET sales.

  Weaknesses

  Module products represented 98% of 1H26 revenue, while pricing pressure and rising material and foundry costs have weakened margins.

  Comparison

  Citi's 2026E-28E revenue forecasts are 6%-7% below Bloomberg consensus, while its 2026E-28E net-profit forecasts are 49%, 38% and 30% below consensus.

  Risks

  Price erosion, weaker AI infrastructure build-out, slower EV demand, IGBT demand displacement by SiC MOSFETs and slower-than-expected SiC progress.

Key data

• 2026E EPS revision-72%Citi cut forecast EPS to Rmb0.80 from Rmb2.85.
• 2027E EPS revision-61%Citi cut forecast EPS to Rmb1.56 from Rmb4.00.
• 1H26 gross profit margin20.6%Down from 29.7% in 1H25.
• 2028E revenue and net profitRmb6.093bn; Rmb548mCiti's newly introduced normalized-outlook forecast.
• Target price valuation39x 2028E P/E1 standard deviation above the three-year average.
• Expected total return9.2%Comprises 8.9% expected share-price return and 0.3% expected dividend yield.

Impact & implications

Citi expects StarPower's near-term financial performance to remain constrained by capacity-driven price competition and higher production costs. Longer term, AI data-center demand, supply localization and SiC penetration could support recovery, but the report does not expect these drivers to offset 2026-27 pressure sufficiently to justify a more positive rating.

Risks

• Aggressive capacity expansion could accelerate price erosion in SiC/GaN power discretes.
• Domestic AI infrastructure build-out could disappoint.
• An EV-demand slowdown could weaken IGBT demand.
• A shift toward SiC MOSFETs could further pressure IGBT demand.
• SiC development could progress more slowly than expected.

What to watch

• AI data-center demand for IGBT, SiC and GaN products.
• Whether EV and renewable-energy demand supports price stabilization.
• Industry capex and the pace of capacity expansion among Chinese suppliers.
• StarPower's overseas-market penetration and share gains.
• The pace of SiC MOSFET commercialization and margin recovery.