UBS Report: Avary Misses 2026 Profit, But GPM Jumps
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UBS Report: Avary Misses 2026 Profit, But GPM Jumps
Avary's Q1 2026 Performance Beat Expectations, Gross Margin Improved Significantly, But Net Profit Dropped Sharply Due to Operating Expenses and Exchange Rates; Investors Should Monitor Future Orders and Capacity Progress.
- Q1 Revenue 800 Million RMB, Slight YoY Decrease, Sharp QoQ Drop
- Gross Margin Reached 22.9%, Exceeding Market Expectations by 4.6 Percentage Points
- Net Profit 463 Million, Significant QoQ and YoY Decline, Below Expectations
- Operating Expense Ratio Increased to 14.6%, R&D Spending Increased Significantly
- Capital Expenditure Surged, Active Capacity Expansion Strategy Continues
- Inventory Increase Mainly Due to Raw Material Stockpiling, Affected by Price Expectations
Report interpretation
Overview
This research report analyzes UBS's view on Avary Holding Shenzhen's Q1 2026 performance. Although the company achieved a significant gross margin improvement to 22.9%, exceeding market expectations, overall profitability did not reach expected levels, mainly dragged by increased operating expenses and exchange losses. Revenue decreased slightly YoY and dropped sharply QoQ, reflecting complex changes in industry and market environments. Investors should pay attention to the company's capacity expansion progress, order demand, and the impact of raw material price changes.
Core views
In this performance, the improvement in GPM relates to the increased contribution in the server sector and profit space improvement brought by raw material price adjustments. The report points out that the jump in gross profit is jointly promoted by the share increase of high-margin products and ASP adjustments. Net profit fell short of expectations, mainly due to a substantial increase in the proportion of operating expenses, especially the surge in R&D investment, reaching 8.8% of sales, far exceeding last year's level, showing the company increased investment in technology and capacity. Meanwhile, financial expenses were dragged by exchange rate fluctuations, exchange losses continued, constituting long-term pressure on profitability. In addition, capital expenditure also increased significantly, ongoing projects continued, especially in Huai'an and Thailand expansion projects, reflecting the company's active layout of future capacity.
Analysis framework
Institutions conducted analysis along profitability and cost structure changes, comparing quarterly revenue, gross profit, and net profit QoQ and YoY changes, combined with financial expenditure and asset expansion data to evaluate the company's future profitability and expansion rhythm. Adopted a method of cross-analysis between financial and operational data to judge the effect of the company's adjustments in market demand, product structure, and cost end. This analysis approach helps understand the relationship between the company's short-term performance fluctuations and medium-to-long-term expansion strategies.
Methodology notes
Valuing the company using P/E multiples and considering adjustments to future growth expectations.
Analysts value the company based on historical and expected earnings using P/E multiples, combined with industry averages, to derive reasonable stock prices and potential target prices.
Assessing the sustainability of company profitability and solvency through free cash flow.
Analyzing corporate operating cash flow and capital expenditures to judge future cash profitability and expansion potential, combining short-term financial pressures and long-term layout.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- 002938.SSBenefiting from gross margin improvement and capacity expansion
- Strengths
- Industry-leading PCB manufacturing capability, continuous capacity expansion
- Weaknesses
- Large short-term profit volatility, significantly affected by exchange rates and operating expenses
- Comparison
- Compared to industry average, company capacity and expansion speed are fast, but profit volatility is large
- Risks
- Order demand slowing, severe exchange rate fluctuations, raw material prices failing to stabilize
Key data
- RevenueRmb800 MillionYoY down slightly 1.3%, QoQ drop sharply 35%, slightly below market expectations
- Gross Margin22.9%Exceeds expectations by 4.6 percentage points, significant improvement, mainly due to product mix adjustment
- Net ProfitRmb463 MillionSignificant QoQ and YoY decline, below market expectations, affected by operations and exchange rates
- Capital ExpenditureRmb280 MillionQoQ growth 130%, reflecting active capacity expansion
- InventoryGrowth 16%/38%Raw material inventory increased, mainly due to price expectation hikes
Impact & implications
The report warns that although the company's gross margin improvement indicates enhanced profitability for some products, the net profit decline reminds the market to still monitor operating expense pressures and exchange losses affecting profitability. The company is increasing capital expenditure and expanding pace, which will improve capacity in the future, but may form pressure on cash flow and profitability in the short term. Investors should pay attention to the continuous impact of the company's order dynamics and raw material price changes to judge the sustainability of performance recovery.
Risks
- Order demand below expectations, market expansion slowing
- Raw material prices continue to rise affecting gross margin
- Severe exchange rate fluctuations leading to financial losses
- Capital expenditure exceeds expectations bringing financial pressure
What to watch
- Company's earnings call on April 30, focus on order structure and capacity utilization
- Subsequent impact of raw material cost changes and ASP adjustments
- Progress and profit release timeline of overseas expansion projects