2Q26 results in line; maintain Overweight and positive on 2026-27 growth

Overview

Morgan Stanley believes iRay Technology's 2Q26 results were in line with expectations, with revenue maintaining strong growth and industrial end-markets benefiting from the battery capex cycle and market-share gains. While product-mix changes pressured gross margin, the company's expansion in OLED backplanes, PCB CT inspection, core components, and solutions is expected to support sustained growth in 2026-27.

Core views

Maintain Overweight. Management left its 2026 revenue and profit-growth guidance unchanged and expects 2027 net-profit growth potentially to outpace revenue growth. Analysts are positive on the company's product competitiveness and execution in expanding into more products and downstream markets.

Analysis framework

The report focuses on 2Q26 and 1H26 operating performance, management guidance, and segment-level growth drivers, while using discounted cash flow valuation to assess the company's medium- to long-term value.

Methodology notes

• Valuation methodsDiscounted cash flow (DCF)

  Base-case valuation

  Assumes a 7.5% WACC, a 4% terminal growth rate, and a 20% CAGR in pre-tax profit for 2026-33.

• Earnings forecastsTop-down operating assumptions

  Revenue, margin, and capex forecasts

  Forecasts revenue growth, margin changes, and the capex pace based on management guidance for OLED backplanes, PCB CT, core components, and the overseas dental business.

Asset mapping & comparison

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

• iRay Technology (688301.SS)

  Covered company

  Strengths

  Strong revenue growth; industrial end-market demand and market-share gains; OLED backplanes, PCB CT, core components, and solutions provide incremental growth; Overweight rating maintained.

  Weaknesses

  Product-mix changes drove 2Q26 gross margin down 7.3 percentage points YoY to 49%.

  Comparison

  Analysts expect the company's risk-adjusted total return over the next 12-18 months to outperform the average across their industry coverage universe.

  Risks

  Intensifying market competition and continued aggressive pricing; slower-than-expected launches of CT detectors or CT tubes.

Key data

• 2Q26 revenueRmb985mn, +68% YoY, +44% QoQExcluding Seeya's Rmb240mn contribution, revenue grew 27% YoY.
• 2Q26 net profitRmb227mn, +19% YoYExcluding the impact of approximately Rmb80mn in non-recurring expenses, recurring net profit grew by more than 40% YoY.
• 2Q26 gross margin49%Down 7.3 percentage points YoY, mainly due to product mix.
• 2026 management guidanceRevenue +50%-70% YoY; net profit +25% YoYManagement maintained its prior guidance.
• 2026 forecast revenueRmb3,626mnMorgan Stanley forecast.
• 2027 forecast revenueRmb4,610mnMorgan Stanley forecast.
• Target priceRmb140.00Implies 43% upside relative to the Rmb97.86 closing price.

Impact & implications

In the near term, strong revenue growth and improvement in recurring profit validate the resilience of growth, but gross margin remains a valuation focus due to product mix. In the medium term, OLED backplane capacity buildout, PCB CT order conversion, expansion of core components and solutions, and growth in industrial and overseas dental businesses are the main catalysts for accelerating profit growth.

Risks

• Intensifying market competition and continued aggressive pricing could compress margins.
• CT detector and CT tube launches may be slower than expected.
• Product-mix changes may continue to pressure gross margin.
• Order wins and revenue recognition for growth-driving businesses may fall short of expectations.

What to watch

• Delivery against 2026 guidance for revenue growth of 50%-70% YoY and net profit growth of 25% YoY.
• The OLED backplane business's 2026 targets of Rmb800mn revenue, 30% gross margin, and 10% net margin, as well as progress on Phase II construction.
• PCB CT inspection equipment order wins from 3Q26 and the pace of revenue recognition in 2027.
• The impact of industrial-business growth and expansion in core components and solutions on margins.
• Product advancement and market opportunities for FPD next-generation photon-counting detectors.