Horizon Robotics' 1H26 trough may already be priced in, with re-rating dependent on customer share gains

Overview

This report is Morgan Stanley's commentary on Horizon Robotics' (9660.HK) 1H26 profit alert. Preliminary 1H26 revenue is expected to increase 25%-35% YoY, but core losses still widened; the report believes the revenue slowdown was mainly due to a weak domestic market, a slower-than-expected J6 ramp-up, and pressure on first-half chip sales caused by a concentration of launches in the second quarter.

Core views

The core view is that the market has already priced in the worst-case scenario relatively fully, and future re-rating depends not primarily on short-term earnings themselves, but on chip-driven revenue expansion, order share gains among key customers such as Li Auto, BYD, Geely, and Chery, as well as breakthroughs in HSD 2.0. To meet consensus expectations and Morgan Stanley's estimates, the company needs chip-driven revenue to grow by more than 80% YoY.

Analysis framework

The report first breaks down headline profit versus non-core items, emphasizing the contribution of fair value changes to 1H26 profit; it then explains the profit alert from the perspectives of revenue, gross margin, expenses, and customer expansion, and values the target price using a probability-weighted DCF.

Methodology notes

• Valuation methodsProbability-weighted DCF

  Weighted valuation across bull, base, and bear case scenarios

  The target price uses a probability-weighted DCF, with bull, base, and bear case weights of 25%, 50%, and 25%, respectively; key assumptions include a 12.2% WACC, 1.9 beta, and a 3% terminal growth rate.

• Financial forecastingMorgan Stanley ModelWare

  Modeled financial forecasting framework

  The report notes that unless otherwise stated, the relevant metrics are based on the Morgan Stanley ModelWare framework, and EPS uses a consensus-based methodology.

Asset mapping & comparison

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

• Horizon Robotics (9660.HK)

  Research coverage target

  Strengths

  Exposed to the growth track of intelligent driving and ADAS/AD in China; the report is constructive on its ability to gain sales share among China's ADAS+AD players, and the target price implies substantial upside.

  Weaknesses

  1H26 core net loss widened, J6 ramp-up has been slow, and R&D expenses increased due to investment in J7 and HSD.

  Comparison

  Relative to peer coverage, the company is listed as an Overweight name within the China Autos & Shared Mobility sector, with an In-Line industry view.

  Risks

  Intensifying competition, geopolitical headwinds, slower-than-expected ADAS/AD adoption, supply chain disruptions, and successful in-house hardware development by automakers.

• BYD Company Limited / Li Auto Inc. / Geely Automobile Holdings / Chery

  Key customers and revenue growth drivers

  Strengths

  The report believes sales expansion with these major customers is critical to meeting revenue expectations, and higher order share from customers such as BYD could become a catalyst for stock re-rating.

  Weaknesses

  Customer vehicle sales or model launch timing may affect chip sales realization.

  Comparison

  Customer concentration makes Horizon Robotics' growth highly correlated with the intelligent driving installation pace of leading Chinese automakers.

  Risks

  Pressure on major customer sales, failure to gain order share, or automakers pushing ahead with internal hardware design.

Key data

• Preliminary 1H26 revenueRmb1.93-2.08bnUp 25%-35% YoY, driven by product solutions and licensing services.
• Preliminary 1H26 profitRmb3.5-4bnA significant improvement from the 1H25 net loss of Rmb5.2bn, though partly driven by fair value changes in financial liabilities.
• 1H26 core net lossRmb1.4-1.7bnExcluding non-core items such as share-based compensation and fair value changes, the loss widened 5%-28% YoY.
• 1H26 gross margin guidance60%-66%Flat to down versus 1H25, possibly reflecting a higher contribution from product solutions revenue.
• Expense trendAbove Rmb2.6bn1H26 operating expenses may rise versus 1H25, mainly driven by increased R&D expenses related to J7 and HSD.
• Target priceHK$8.70Implies 96% upside versus the July 21, 2026 closing price of HK$4.45.
• 2026e revenue forecastRmb6,092mnThe table shows the 2026e net revenue forecast.
• 2028e EBITDA forecastRmb1,893mnEBITDA is forecast to turn positive in 2028e.

Impact & implications

The implication for the investment view is that the short-term profit alert itself is mixed: revenue growth was below high-growth expectations and core losses widened, but valuation may already reflect the trough. If the company can increase order share among key automaker customers and advance HSD 2.0, the stock has room for re-rating; otherwise, slower ADAS/AD penetration, supply chain disruptions, or successful in-house hardware development by automakers would pressure valuation.

Risks

• China's ADAS/AD adoption pace is below expectations.
• Supply chain disruptions.
• Successful in-house hardware design by automakers, reducing opportunities for external suppliers.
• Pressure on vehicle sales of key Chinese customers.
• Intensifying competition in intelligent driving and potential geopolitical headwinds.

What to watch

• Changes in order share among major customers such as BYD.
• Progress in HSD 2.0 commercialization and technological breakthroughs.
• The ramp-up speed of J6 and recovery in first-half chip sales.
• The impact of changes in the revenue mix of product solutions on gross margin.
• The impact of R&D investment in J7 and HSD on operating expenses and the pace of loss narrowing.