Hesai's 1Q26 profit was dragged by new-business OPEX, but BofA maintains a Buy rating and a USD27/HKD211 target price

Overview

This is a BofA Securities 1Q26 earnings review of HESAI GROUP. The title indicates that near-term profitability is affected by incremental OPEX from new businesses, but the analyst continues to focus on revenue contribution from SGI and other new businesses after 2Q26. 1Q26 revenue was RMB681mn, up 30% YoY and down 32% QoQ; gross margin was 39.1%; operating loss narrowed to RMB9mn; and net profit reached RMB18mn. The report keeps a Buy rating and a target price of USD27 / HKD211.

Core views

The core views are as follows: first, 1Q26 core profit was weighed by SGI investment, and SGI recorded a RMB50mn OPEX loss with no revenue contribution; second, management expects SGI to start contributing revenue in 2Q26, with 2026/2027 revenue guidance of RMB100mn/RMB500mn, and its long-term ASP and margin are expected to be higher than the LiDAR business; third, the upgraded Mercedes-Benz L3 partnership, Xiaomi overseas model orders, entry into Japanese OEMs, and SOP launches at Geely-affiliated brands will support LiDAR shipments; fourth, BofA basically keeps 2026E forecasts unchanged but cuts 2027E earnings to reflect higher-than-expected OPEX from business expansion.

Analysis framework

The report follows an earnings-review and forecast-revision framework, first breaking down changes in 1Q26 revenue, gross margin, operating profit, net profit, and segment disclosure, then assessing the revenue ramp and OPEX pressure of the SGI new business, while also combining ADAS customer expansion and LiDAR shipment targets to judge medium-term growth. On valuation, it uses the average of DCF and EV/Sales, with the target price unchanged.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow

  BofA derives the USD27 fair value via DCF, with key assumptions including a 3.5% perpetual FCF growth rate and 11.8% WACC; WACC includes a 3% risk-free rate, 12% expected market return, and 1.4 Beta.

• Valuation methodsEV/Sales

  Enterprise value / sales multiple

  The report assigns Hesai a 6x EV/Sales target multiple on 2026E sales, about 30% higher than the 4.6x multiple for comparable LiDAR and automotive technology companies, citing its industry-leading position, better profitability and cash flow, and stronger balance-sheet management.

• Financial qualityiQmethod

  BofA Global Research standardized financial metrics system

  This system is used to keep the global research framework consistent across business performance, earnings quality, and valuation validation; the appendix lists definitions for metrics such as ROCE, ROE, operating margin, FCF, and EV/EBITDA.

Asset mapping & comparison

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

• HESAI GROUP equity (2525.HK / HSAI.US)

  Core coverage name

  Strengths

  LiDAR industry leader, ADAS customer expansion, upgraded Mercedes-Benz L3 partnership, FY26 shipment target maintained at 3-3.5mn units.

  Weaknesses

  Higher SGI investment is pressuring short-term core profits, and 2027E earnings have been cut.

  Comparison

  The 6x 2026E EV/Sales target multiple is about 30% higher than the 4.6x multiple for comparable LiDAR and automotive technology companies.

  Risks

  Customer concentration, downside in ASP and gross margin, slower growth in EVs and smart vehicles, and intensifying LiDAR competition.

• LiDAR business

  Current main profit and shipment base

  Strengths

  1Q26 disclosed operating income of RMB42mn, supported by ADAS and L3 autonomous driving demand.

  Weaknesses

  Gross margin declined YoY and QoQ, and ASP pressure remains a potential headwind.

  Comparison

  The report believes SGI's mature-stage ASP and margin could be higher than those of the LiDAR business.

  Risks

  Intense competition, ASP declines eroding margins, and changes in customer order cadence.

• SGI new business (Kosmo and actuator modules)

  Future growth contributor and near-term OPEX source

  Strengths

  Management guides 2026/2027 revenue of RMB100mn/RMB500mn and expects revenue contribution to begin in 2Q26.

  Weaknesses

  No revenue in 1Q26 and a RMB50mn OPEX loss, with FY26 OPEX possibly exceeding RMB200mn.

  Comparison

  Early-stage ASP and margin may not be representative, but mature-stage performance is expected to be higher than the LiDAR business.

  Risks

  Revenue realization falling short of expectations, spending exceeding expectations, and slower product maturity and scale-up than expected.

Key data

• 1Q26 revenueRMB681mnUp 30% YoY and down 32% QoQ.
• 1Q26 gross margin39.1%Down 2.6 percentage points YoY and 1.9 percentage points QoQ.
• 1Q26 operating lossRMB9mnNarrowed from a RMB33mn loss in 1Q25.
• 1Q26 net profitRMB18mnMainly supported by non-operating gains, above BofA's RMB9mn estimate.
• LiDAR segment operating incomeRMB42mnThe company started providing more detailed disclosure on LiDAR and SGI from this quarter.
• SGI segment lossRMB50mnIncludes only OPEX, with no revenue contribution in 1Q26.
• SGI revenue guidanceRMB100mn in 2026; RMB500mn in 2027Management expects revenue contribution to begin in 2Q26.
• FY26 SGI OPEXMay exceed RMB200mnRMB50mn has already been incurred in 1Q26.
• 2Q26 revenue guidanceRMB850-900mnAbout 20-27% YoY growth.
• FY26 LiDAR shipment target3-3.5mn unitsManagement kept the target unchanged.
• Target priceUSD27 / HKD211Derived from the average of DCF and EV/Sales, with the target price unchanged.
• Current priceUSD22.01 / HKD174.20Corresponds to the stock-price table in the report.
• 2026E EPS revisionRaised from CNY3.24 to CNY3.27The 2026E forecast is basically unchanged.
• 2027E EPS revisionLowered from CNY6.44 to CNY6.30Reflects higher-than-expected OPEX from business expansion.
• 2028E EPS revisionLowered from CNY7.71 to CNY7.58Also affected by the higher-OPEX assumption.

Impact & implications

The investment implication of the report is that the market may focus on margin pressure from SGI spending in the short term, but if new-business revenue is delivered after 2Q26, the Mercedes-Benz L3 project expands to more vehicle models and drives higher LiDAR shipments, valuation support may still come from revenue growth and an upgraded business mix. Conversely, if SGI ramp-up is slower than expected or OPEX remains above expectations, earnings forecasts for 2027E and beyond may remain under pressure.

Risks

• Intense competition in the LiDAR industry.
• Faster-than-expected ASP declines eroding gross margin.
• Customer concentration risk.
• Slower-than-expected growth in EVs and smart vehicles.
• Higher-than-expected SGI new-business OPEX weighing on earnings.
• SGI revenue contribution and product maturity falling short of management guidance.

What to watch

• Whether 2Q26 revenue can reach the RMB850-900mn guidance.
• Whether SGI starts contributing revenue from 2Q26 and whether the RMB100mn revenue target for 2026 can be achieved.
• Whether FY26 SGI OPEX stays within the range acceptable to management and the market.
• Whether the Mercedes-Benz L3 model partnership leads to broader model coverage and higher LiDAR shipments.
• Progress on Xiaomi overseas models, the Japanese OEM GAC Toyota bZ3X, and 2H26 SOP launches for Geely-affiliated brands.
• Whether the FY26 LiDAR shipment target of 3-3.5mn units is maintained and achieved.
• The direction of changes in gross margin, ASP, and OPEX ratio.