Ningbo Orient Wires & Cables (603606) Report Interpretation

Overview

This earnings quick note reviews Ningbo Orient Wires & Cables' 1H26 and 2Q26 results. Nomura sees the subdued quarterly profit growth as a timing issue in submarine-cable revenue recognition, supported by a high goods-in-transit balance and robust backlog, and retains its Buy rating and CNY79 target price.

Core views

Ningbo Orient Wires & Cables reported 1H26 revenue of CNY5.8bn, up 31% year-on-year, and net profit of CNY565mn, up 19%. In 2Q26, revenue rose 28% year-on-year and 1% quarter-on-quarter to CNY2.9bn, while earnings increased only 1% year-on-year to CNY193mn and fell 48% quarter-on-quarter. The quarterly slowdown was also visible in profitability: gross margin fell 0.9 percentage points year-on-year and 8.2 percentage points quarter-on-quarter to 15.4%; operating margin was 7.2%, down 0.5 percentage points year-on-year and 8.7 percentage points quarter-on-quarter; and net margin was 6.6%, down 1.8 percentage points year-on-year and 6.3 percentage points quarter-on-quarter. Nomura attributes part of the gross-margin pressure to a revenue mix with a larger contribution from traditional land-cable sales. The institution's central explanation for muted 2Q26 earnings is slower-than-expected recognition of submarine-cable revenue, rather than an absence of demand. Domestic submarine-cable sales are recognized when cables are installed and accepted by customers. Consequently, shipments that have not completed this process remain unrecognized: goods in transit rose to CNY1.6bn at end-1H26 from CNY423mn at end-FY25. In the quarter, power engineering and equipment-cable revenue rose 38% year-on-year to CNY1.8bn, while submarine and high-voltage-cable revenue grew a slower 15% to CNY874mn, which Nomura links to delayed recognition on certain offshore-wind projects. Marine equipment and engineering revenue increased 10% to CNY232mn. Nomura views the order base as supportive of a later recovery. Backlog was CNY17.9bn as of 3 August, including CNY9.1bn for submarine and high-voltage cables. It expects key offshore-wind projects to be delivered and recognized more quickly in 2H26F, leading to sequential improvement in gross margin and earnings growth. The report maintains Buy with a CNY79 target price based on 22x 2027F EPS of CNY3.59; it notes that the stock was trading at 11.4x FY27F P/E. Forecasts remain under review.

Analysis framework

Nomura reviews the half-year and quarterly income statement, margin trends and segment revenue growth, then links delayed submarine-cable revenue recognition to the goods-in-transit balance and project acceptance process. It tests the timing explanation against the order backlog and uses a forward P/E multiple on 2027F EPS to set the target price.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Forward P/E multiple valuation

  Nomura derives its CNY79 target price by applying a 22x multiple to 2027F EPS of CNY3.59, stating that the multiple is in line with the company's historical trading average.

• Industry AnalysisVolume-price decomposition

  Segment revenue and margin mix analysis

  The report separates revenue growth by cable segment and connects the shift toward traditional land cables with lower quarterly gross margin, while distinguishing delayed recognition from underlying backlog.

Asset mapping & comparison

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

• Ningbo Orient Wires & Cables (603606.SH)

  Primary covered company; delayed submarine-cable revenue recognition is expected to reverse as offshore-wind projects are delivered and accepted.

  Strengths

  CNY17.9bn order backlog, including CNY9.1bn in submarine and high-voltage cables, and CNY1.6bn of goods in transit at end-1H26.

  Weaknesses

  2Q26 earnings growth was muted and gross margin contracted as revenue mix shifted toward traditional land cables and submarine-cable revenue recognition was delayed.

  Comparison

  The 22x target multiple is stated to be in line with the company's historical trading average; the stock traded at 11.4x FY27F P/E.

  Risks

  Longer backlog delivery periods, unhedged metal-price fluctuations and intensified competition in power cables.

Key data

• 1H26 revenueCNY5.8bnUp 31% year-on-year.
• 1H26 net profitCNY565mnUp 19% year-on-year.
• 2Q26 revenueCNY2.9bnUp 28% year-on-year and 1% quarter-on-quarter.
• 2Q26 net profitCNY193mnUp 1% year-on-year but down 48% quarter-on-quarter.
• 2Q26 gross margin15.4%Down 0.9 percentage points year-on-year and 8.2 percentage points quarter-on-quarter.
• Goods in transitCNY1.6bnAt end-1H26, versus CNY423mn at end-FY25; represents shipped products with unrecognized revenue.
• Order backlogCNY17.9bnAs of 3 August, including CNY9.1bn from submarine and high-voltage cables.
• Target-price basis22x 2027F EPS of CNY3.59Supports Nomura's CNY79 target price; the stock traded at 11.4x FY27F P/E.

Impact & implications

Nomura's interpretation is that installation and customer-acceptance timing deferred revenue from offshore-wind submarine-cable projects into later periods. If the expected deliveries occur in 2H26F, the institution expects sequential improvement in both gross margin and earnings growth, while the existing backlog provides the demand base for that view.

Risks

• Backlog delivery could take longer than expected because of policy changes or a demand shock.
• Significant metal-price fluctuations, including copper, could hurt results if not effectively hedged.
• Competition in the power-cable sector could intensify.

What to watch

• Delivery and customer acceptance of key offshore-wind projects in 2H26F.
• The conversion of the CNY1.6bn goods-in-transit balance into recognized revenue.
• Progress in the CNY17.9bn order backlog, particularly the CNY9.1bn submarine and high-voltage-cable portion.
• Sequential changes in gross margin and earnings growth.