Goldman Sachs Maintains Buy on Naura Technology, Raises Target Price to RMB 638

Overview

This research report is Goldman Sachs' quarterly earnings commentary on Naura Technology (002371.SZ). The report argues that the company's Q1 2026 revenue growth was robust and in line with expectations; more importantly, the significant improvement in gross margin validates its successful transition from mature nodes to advanced nodes. Although short-term increased R&D investment led to net profit slightly missing expectations, the firm remains optimistic about its growth potential as a leading domestic platform-type semiconductor equipment provider amid deepening import substitution, maintaining a Buy rating and raising the target price to RMB 638.

Core views

Demand and Product Upgrade: 1Q26 revenue reached RMB 10.32 billion, up 26% YoY, primarily driven by increased semiconductor capital expenditure from downstream customers. A more critical signal lies in gross margin performance, which rose to 40.8% in Q1, an increase of 3.6 percentage points from 37.2% in the previous quarter. This structural improvement indicates that the company's product mix is accelerating its shift from mature nodes to advanced memory and logic chip sectors. The company recently launched a new generation of 12-inch etching equipment targeted at advanced nodes, further consolidating its competitiveness in the high-end market. Financial Performance and Earnings Revision: While revenue met targets, operating expense ratios exceeded expectations in Q1 due to increased R&D spending, resulting in net profit of RMB 1.635 billion, up only 3% YoY, missing Goldman Sachs estimates and market consensus by approximately 13% and 6%, respectively. However, based on upward revenue revisions and the sustainability of product mix optimization, Goldman Sachs has raised its net profit forecasts for 2027 and 2028 by 3% and 4%, respectively. Profit margins are expected to have further room for improvement as shipments of advanced node equipment ramp up. Valuation Logic Adjustment: Goldman Sachs raised its 12-month target price from RMB 600 to RMB 638. The new valuation is based on a 2027 P/E of 36.5x (previously 35.2x). This multiple expansion is not solely due to changes in earnings forecasts but reflects a market re-rating of Chinese semiconductor equipment companies during their breakthrough into advanced nodes. This target P/E is derived from a regression analysis of global semiconductor equipment companies' P/E ratios against forward earnings growth rates.

Analysis framework

This report employs a typical 'Volume-Price-Quality' three-dimensional analysis framework to evaluate the quarterly performance of semiconductor equipment companies. First, it examines 'Volume' (revenue growth) to confirm industry beta and the stability of the company's market share. Second, it focuses on 'Quality' (gross margin and product mix), using QoQ changes in gross margin to determine whether technological iteration has translated into real profitability improvements; this is key to distinguishing pure cyclical stocks from growth stocks. Finally, it combines 'Expenses' (R&D and operating expenditures) to calibrate short-term profit fluctuations, distinguishing between temporary investments and permanent deterioration. In terms of valuation, the report does not use static historical P/E but adopts a cross-market regression method, placing Chinese equipment manufacturers within a global coordinate system. It dynamically adjusts valuation multiples based on their growth attributes during the 'advanced node breakthrough phase,' reflecting an understanding of technology premiums.

Methodology notes

• Valuation MethodPE/PEG valuation

  Target P/E derivation based on global peer regression

  In determining the target P/E ratio, the research report did not simply refer to historical averages but used a 'regression analysis of global semiconductor equipment companies' P/E ratios against forward earnings growth rates.' This method helps investors understand how a company's reasonable valuation multiple should be benchmarked globally based on its growth characteristics when it is in a high-growth or technological breakthrough phase, rather than being limited to local market sentiment.

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Gross margin changes as a leading indicator of product mix upgrades

  For hard-tech companies like semiconductor equipment manufacturers, revenue growth may stem from the volume release of low-end products, whereas gross margin improvement is often the definitive evidence of raised technological barriers and a shift towards high-end products. The report verifies the logic of 'upgrading to advanced nodes' by tracking QoQ gross margin changes (+3.6 ppts), which is more forward-looking than merely looking at revenue.

Asset mapping & comparison

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

• Naura Technology (002371.SS)

  Core beneficiary: As the sole domestic platform-type semiconductor equipment supplier, it directly benefits from domestic foundry expansion into advanced nodes and deepening import substitution

  Strengths

  Product line covers all stages including etching, deposition, and cleaning; 1Q26 gross margin improvement validates breakthroughs in high-end products; launch of new generation 12-inch etching equipment

  Weaknesses

  High short-term R&D investment suppresses net profit release; long validation cycles for advanced node customers

  Comparison

  Compared to single-category equipment manufacturers, its platform layout provides stronger anti-cyclical capabilities and advantages in system-level solutions during competition for advanced nodes

  Risks

  Further tightening of US export controls; slower-than-expected capacity expansion by mature node customers

Key data

• 1Q26 Operating RevenueRMB 10.32 billionUp 26% YoY, in line with Goldman Sachs and Bloomberg consensus expectations
• 1Q26 Gross Margin40.8%Increased by 3.6 percentage points QoQ (37.2% in 4Q25), indicating product mix optimization
• 1Q26 Net ProfitRMB 1.635 billionUp 3% YoY, 13% below Goldman Sachs expectations, primarily due to R&D expenses exceeding forecasts
• 2027E Net Profit Forecast Adjustment+3%Based on upward revenue revisions and ramp-up of advanced node shipments
• New Target Price / Implied 2027E P/ERMB 638.0 / 36.5xPrevious target price RMB 600 / 35.2x, reflecting valuation re-rating

Impact & implications

The report argues that Naura Technology's counter-trend gross margin improvement is a significant signal that China's semiconductor equipment industry has entered 'deep waters,' meaning domestic substitution has moved from the stage of 'availability' to 'quality.' For investors, this implies that the focus of evaluating the company should shift from mere order growth rates to 'advanced process proportion' and 'R&D conversion efficiency.' The target price increase not only reflects earnings revisions but also implicitly acknowledges the institution's recognition of the rising status of Chinese equipment manufacturers in the global value chain. Future attention should be paid to the validation progress of the new generation etching equipment and the pace of customer capacity expansion, which will be the core catalysts supporting an upward shift in the valuation center.

Risks

• Further intensification of US export restrictions on Chinese semiconductor companies could lead to delays in downstream customer capacity expansion, thereby reducing demand for Naura Technology's equipment
• Slower-than-expected capacity expansion progress by the company's customers in the mature process sector could lead to slowing revenue growth and earnings below current forecasts

What to watch

• Validation and adoption progress of the new generation 12-inch etching equipment with advanced node customers
• Actual implementation and structural changes in capital expenditure by domestic semiconductor foundries
• Trends in the company's R&D expense ratio and the commercialization conversion efficiency of new products