Victory Giant Technology (300476.SZ) Report Interpretation

Overview

The report assesses Victory Giant Technology's second-quarter performance variance, margin pressure during the platform transition, and its recovery path after the third quarter. It concludes that near-term earnings pressure prompted BofA to lower its forecasts and valuation multiple, but order visibility, its position in AI server platforms, capacity ramp-up speed, and customer expansion continue to support the Buy rating.

Core views

Second-quarter net profit appeared strong, but the underlying operating performance was weaker than expected. 2Q26 revenue was CNY6.110bn, up 10.7% QoQ and 29.5% YoY, missing BofA's forecast by 3.2% and consensus by 5.8%; the report had previously expected relatively slow sequential revenue growth. Net profit was CNY1.568bn, up 21.7% QoQ and 28.3% YoY, beating BofA's forecast by 9.6% and consensus by 4.4%, mainly driven by higher fair-value gains. By contrast, operating profit was CNY1.532bn, down 1.0% QoQ and up 8.3% YoY, missing BofA's forecast by 7.8% and consensus by 16.4%, indicating that core operating performance was weaker than the net profit result suggested. The primary pressure came from margins. 2Q26 gross margin was 32.1%, down 2.4 percentage points QoQ and 6.7 percentage points YoY, 2.0 percentage points below BofA's forecast and 4.7 percentage points below consensus; operating margin was 25.1%, down 3.0 percentage points QoQ. Management attributed the weaker gross margin to preemptive staffing and capacity deployment before the new platform began ramping in the third quarter: headcount increased by more than 30% QoQ, while depreciation on new capacity had already begun to be recognized in costs even though the corresponding revenue had not yet been fully realized. BofA therefore views the second-quarter weakness as a timing mismatch during the platform transition rather than a reversal in the demand thesis. Management expects margins to improve sequentially in the second half, while BofA expects earnings momentum to continue strengthening through 4Q26. The recovery thesis primarily depends on the Vera Rubin platform ramp-up, longer order visibility, and capacity expansion. The company stated that order visibility has improved and extended into 2027, that it plans to increase capacity to CNY100bn by the end of 2027, and that it remains confident in maintaining a market share of more than 50%. The report believes that Victory Giant Technology faces near-term pressure during the platform transition, but its faster capacity ramp-up is a relative advantage that should help stabilize its share as more peers enter the Nvidia supply chain. BofA expects the company to benefit from the rising unit value of AI server PCBs and emphasizes its industry-leading position on Nvidia platforms. Customer and project diversification represents another medium-term growth driver. In addition to its key customer, the company is expanding into ASIC customers, mSAP optical-module projects, and domestic server projects. The report believes these developments can broaden its growth sources, reduce its complete dependence on a single platform or customer, and extend business visibility into 2027. The company's existing products also cover servers, communications, automotive, and consumer electronics, while it continues to expand into faster-growing areas such as AI computing, high-end servers, and optical transmission. Given recent margin pressure, BofA cut its 2026E net profit forecast by 7.0% to CNY7.689bn and lowered EPS from CNY8.65 to CNY8.05; it cut 2027E net profit by 2.7% to CNY14.442bn and lowered EPS from CNY15.10 to CNY14.70; and it cut 2028E net profit by 0.9% to CNY22.510bn and lowered EPS from CNY23.12 to CNY22.90. 2026E sales, gross profit, and operating profit were cut by 5.9%, 9.5%, and 9.8%, respectively, reflecting near-term revenue and margin pressure; the adjustments for 2027—2028 were smaller and mainly reflected intensifying competition. BofA's 2026—2027E earnings forecasts remain 10%—11% below consensus, while its 2026E and 2027E gross margin forecasts of 33.8% and 37.5%, respectively, are 5.3 and 3.6 percentage points below consensus, indicating that it is more cautious than the market about the pace of near-term margin recovery. Despite the forecast cuts, the report still expects a 71% earnings CAGR over 2025—2028E. BofA expects sales to increase from CNY19.292bn in 2025 to CNY31.458bn in 2026E, CNY53.462bn in 2027E, and CNY77.215bn in 2028E; adjusted net profit is correspondingly expected to rise from CNY4.312bn to CNY7.689bn, CNY14.442bn, and CNY22.510bn. Operating margin is expected to increase from 26.9% in 2025 to 27.7% in 2026E, 31.3% in 2027E, and 33.7% in 2028E. High capital expenditure is expected to result in negative free cash flow of CNY6.623bn in 2026E, but as capacity expansion spending translates into revenue, free cash flow is expected to turn positive at CNY8.576bn in 2027E and rise to CNY15.219bn in 2028E. On valuation, BofA cut its target price from CNY455 to CNY367 and lowered its valuation benchmark from 30x 2027E P/E to 25x. The lower multiple reflects market concerns about rising competition as more peers enter the Nvidia supply chain; 25x is also close to Victory Giant Technology's ten-year average valuation of 26x. The report also notes that the company was then trading at 20x one-year forward P/E, below its historical average. BofA believes that a strong earnings cycle, extended business visibility, and a more diversified customer base can support a valuation near the historical average, while competitive risks constrain a higher multiple. Based on the company's solid position on Nvidia platforms, faster capacity expansion capabilities, and progress in customer diversification, BofA ultimately reiterates its Buy rating.

Analysis framework

The report first separates the contribution of fair-value gains to the second-quarter net profit beat and compares revenue, gross margin, and operating profit with BofA's forecasts and consensus to identify weakness in core operations. It then explains margin changes through preemptive hiring, depreciation, and the timing of the new platform ramp-up before rebuilding its 2026—2028 earnings forecasts based on order visibility, capacity plans, market share, and customer and project expansion. Finally, the report determines the target price using 2027E P/E and the historical trading average, and jointly assesses risk and valuation based on intensifying competition, capacity ramp-up advantages, and customer diversification.

Methodology notes

• Valuation MethodologyP/E and PEG Valuation

  2027E target P/E valuation

  The report derives a CNY367 target price using 25x 2027E P/E and compares this multiple with the company's ten-year average trading level of 26x; the valuation multiple was lowered from 30x to reflect intensifying competition.

• Corporate Fundamentals and Financial FrameworkEarnings Quality Analysis

  Analysis of the difference between net profit and operating profit

  The report notes that the second-quarter net profit beat was mainly attributable to higher fair-value gains, while operating profit missed expectations, and therefore uses operating profit and margins to assess core business performance more directly.

• Corporate Fundamentals and Financial FrameworkThree-statement linkage

  Revenue, profit, capital expenditure, and free cash flow forecasts

  The report forecasts income statement, cash flow statement, and balance sheet items together, uses depreciation and capital expenditure arising from preemptive capacity expansion to explain recent margin and free cash flow pressure, and reflects the subsequent path for capacity to translate into revenue and cash flow.

• Corporate Fundamentals and Financial Framework

  Comparison of BofA forecasts with market consensus

  The report compares quarterly actual results item by item with BofA's forecasts and consensus, and compares 2026—2028 revenue, gross margin, and earnings forecasts to identify expectation gaps and BofA's more cautious assumptions relative to the market.

Asset mapping & comparison

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

• Victory Giant Technology (300476.SZ)

  An AI server and high-density PCB supplier that the report believes will benefit from the rising unit value of AI server PCBs and the new platform ramp-up.

  Strengths

  It holds a leading position on Nvidia platforms, ramps capacity relatively quickly, management is confident in maintaining more than 50% market share, order visibility extends into 2027, and it is advancing ASIC, mSAP, and domestic server projects.

  Weaknesses

  Preemptive hiring and depreciation on new capacity during the platform transition weighed on second-quarter gross margin and operating profit, while high capital expenditure results in negative 2026E free cash flow.

  Comparison

  The report states that more peers are entering the Nvidia supply chain, but Victory Giant Technology's faster capacity expansion may help it stabilize market share; its 20x one-year forward P/E is below the ten-year average of 26x.

  Risks

  AI cloud capital expenditure or GPU platform upgrades could be slower than expected, competition could cause significant market share losses, server rack supply chain bottlenecks could emerge, and China-US disputes could worsen.

Key data

• 2Q26 RevenueCNY6.110bnUp 10.7% QoQ and 29.5% YoY; 3.2% below BofA's forecast and 5.8% below consensus.
• 2Q26 Net ProfitCNY1.568bnUp 21.7% QoQ and 28.3% YoY; 9.6% above BofA's forecast and 4.4% above consensus, mainly driven by higher fair-value gains.
• 2Q26 Operating ProfitCNY1.532bnDown 1.0% QoQ and up 8.3% YoY; 7.8% below BofA's forecast and 16.4% below consensus.
• 2Q26 Gross Margin32.1%Down 2.4 percentage points QoQ and 6.7 percentage points YoY; 2.0 and 4.7 percentage points below BofA's forecast and consensus, respectively.
• Headcount ChangeIncreased by more than 30% QoQManagement stated that preemptive hiring was one reason for pressure on second-quarter gross margin.
• Market Share TargetMore than 50%The market share level that management remains confident it can maintain.
• Capacity PlanReach CNY100bn by the end of 2027Order visibility has extended into 2027.
• 2026E Net Profit and EPSCNY7.689bn; CNY8.05Both were cut by 7.0% from previous forecasts; previous EPS was CNY8.65.
• 2027E Net Profit and EPSCNY14.442bn; CNY14.70Both were cut by 2.7% from previous forecasts; previous EPS was CNY15.10.
• 2028E Net Profit and EPSCNY22.510bn; CNY22.90Both were cut by 0.9% from previous forecasts; previous EPS was CNY23.12.
• 2025—2028E Earnings CAGR71%Based on BofA's model forecasts.
• 2026E—2028E SalesCNY31.458bn; CNY53.462bn; CNY77.215bnCorresponding to 2026E, 2027E, and 2028E.
• 2026E—2028E Operating Margins27.7%; 31.3%; 33.7%Expected to rise as the platform ramps up and capacity utilization improves.
• 2026E—2028E Free Cash Flow-CNY6.623bn; CNY8.576bn; CNY15.219bnNegative in 2026E due to CNY18.000bn in capital expenditure and expected to turn positive in 2027E.
• Target PriceCNY367.00Cut from CNY455.00, based on 25x 2027E P/E; 30x was previously used.
• Valuation Reference20x one-year forward P/E; 26x ten-year averageThe report states that the current forward P/E is below the historical average and that the target valuation multiple is 25x.

Impact & implications

The report believes that the second-quarter margin decline mainly reflected costs incurred ahead of the new platform ramp-up, and that revenue realization and improved capacity utilization from the third quarter should drive margin recovery. Meanwhile, orders extending into 2027, the CNY100bn capacity plan, and expansion into ASIC, mSAP, and domestic server projects enhance medium-term growth visibility; however, more peers entering the Nvidia supply chain makes competition the main constraint behind the cuts to earnings forecasts and the valuation multiple.

Risks

• Downside risks include weaker-than-expected global AI cloud capital expenditure, slower-than-expected GPU platform upgrades, significant market share losses to competitors, supply chain bottlenecks restricting server rack shipments, and worsening China-US disputes.
• Upside risks include stronger-than-expected global AI cloud capital expenditure, faster-than-expected GPU platform upgrades, further market share gains from competitors, and easing China-US disputes.

What to watch

• Monitor the Vera Rubin platform ramp-up from 3Q26 and whether earnings momentum continues strengthening through 4Q26 as the report expects.
• Monitor whether gross margin improves sequentially in the second half and whether higher capacity utilization absorbs the pressure from preemptive hiring and depreciation.
• Monitor order visibility extending into 2027 and execution of the CNY100bn capacity target by the end of 2027.
• Monitor whether market share above 50% can be maintained and how competition changes as more peers enter the Nvidia supply chain.
• Monitor progress in expanding ASIC customers, mSAP optical modules, and domestic server projects.
• Monitor changes in global AI cloud capital expenditure, GPU platform upgrades, server rack supply chain bottlenecks, and China-US disputes.