2Q26 Results in Line with Lowered Expectations; Overseas Exposure Stabilizes Margin, While AIDC Power Electronics Remains to Be Validated

Overview

The report reviews Joyson Electronics' 2Q26 results and focuses on the potential extension of its automotive power electronics capabilities into power products for AI data centers. Morgan Stanley believes the quarterly results were in line with lowered expectations, while the overseas business supported relatively resilient gross margin performance. The AIDC business offers technological synergies, but certification and reliability requirements mean that volume ramp-up will still take time.

Core views

Joyson Electronics' 2Q26 earnings were Rmb337mn, down 8% year over year and 16% quarter over quarter, in line with already lowered market expectations. Revenue for the same period declined 9% year over year to Rmb14.3bn, which the report attributes to weak global automotive production. Accordingly, the quarter did not deliver a significant better-than-expected earnings catalyst, and the report assesses the impact on the existing investment thesis as broadly unchanged. Regarding earnings quality, 2Q26 gross margin was 17.8%, down 0.6 percentage points year over year but up 0.1 percentage points quarter over quarter, and more resilient than peers such as Desay, Foryou, and Hirain. Morgan Stanley believes the key reason is Joyson Electronics' high overseas business exposure: 76% of 1H26 revenue came from overseas markets, and passing higher raw-material costs on to global automakers is relatively easier than passing them on to Chinese automakers, providing some margin cushion amid weak industry demand. The report's new analytical focus is the extension of automotive power electronics capabilities into AI data centers. Morgan Stanley believes Joyson Electronics can leverage its technological expertise in 800V EV high-voltage systems to develop power-management products required by AIDC, including AC/DC power supply units (PSUs), DC/DC converters, and coolant distribution units (CDUs). Management expects prototype products to be ready around September. The report recognizes the technological synergies between EV high-voltage components and AIDC power components, but also emphasizes that automotive suppliers must complete new technical certifications for data centers' high power-density and round-the-clock continuous-operation requirements. Therefore, moving from prototypes to actual orders and revenue contributions will take time. The financial model shows that Morgan Stanley forecasts earnings per share of Rmb0.87, Rmb1.14, Rmb1.40, and Rmb1.51 from 2025 to 2028, respectively, compared with consensus estimates of Rmb1.05, Rmb1.15, Rmb1.35, and Rmb1.55 over the same period. The report forecasts net revenue rising from Rmb61,183mn in 2025 to Rmb72,930mn in 2028, EBITDA increasing from Rmb5,215mn to Rmb6,363mn, and ModelWare net profit increasing from Rmb1,336mn to Rmb2,319mn. The corresponding P/E declines from 36.1x in 2025 to 12.7x in 2028, while EV/EBITDA declines from 12.1x to 7.1x, reflecting the earnings growth and valuation normalization assumed in the model. The Rmb25.00 target price is derived from a DCF valuation, with key assumptions including a 12.0% WACC, comprising a 14.5% cost of equity and a 6.3% cost of debt, a 5% medium-term growth rate, and a 3% terminal growth rate. Based on the Rmb19.14 closing price on August 25, 2026, the target price implies 31% potential upside; however, the stock rating remains Equal-weight and the industry view is In-Line. Upside scenarios include faster-than-expected integration of the automotive safety business, solid progress in securing global orders for automotive electronics and safety systems, and winning new projects in humanoid robotics. Downside scenarios include higher-than-expected integration costs reflected in operating expenses and the loss of new-order share to Autoliv and/or TRW during business restructuring.

Analysis framework

The report first compares 2Q26 earnings and revenue with lowered market expectations and year-over-year and quarter-over-quarter performance, then uses the overseas revenue mix and cost pass-through capability to explain why gross margin outperformed some peers. It subsequently evaluates the technological synergies and recertification constraints between 800V EV power electronics and AIDC equipment. Finally, it determines the target price based on 2025-2028 financial forecasts and DCF parameters and presents upside and downside scenarios that could alter the base-case view.

Methodology notes

• Valuation MethodologyDiscounted Cash Flow (DCF)

  DCF Valuation

  The report determines the Rmb25.00 base-case target price by discounting future cash flows, using a 12.0% WACC, a 5% medium-term growth rate, and a 3% terminal growth rate. The WACC is further composed of a 14.5% cost of equity and a 6.3% cost of debt.

• Event Trading and Behavioral FinanceEvent-driven analysis

  Earnings Reaction and Consensus Comparison

  The report compares 2Q26 revenue, earnings, and margins with year-over-year and quarter-over-quarter results and already lowered market expectations to assess the impact of the results on the existing investment thesis and future consensus expectations.

Asset mapping & comparison

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

• Joyson Electronics (600699.SH)

  The report analyzes its 2Q26 results, the margin support from its overseas business, and the potential to extend automotive power electronics into AIDC products.

  Strengths

  Overseas revenue accounted for 76% of 1H26 revenue, making it relatively easier to pass raw-material costs on to global automakers; the company has accumulated expertise in 800V EV high-voltage power electronics.

  Weaknesses

  Weak global automotive production led to a year-over-year decline in 2Q26 revenue, while AIDC products still require recertification for data-center operating conditions.

  Comparison

  2Q26 gross margin performance was more resilient than that of Desay, Foryou, and Hirain.

  Risks

  Integration expenses for the automotive safety business may exceed expectations, and the company may also lose new-order share to Autoliv and/or TRW during business restructuring.

Key data

• 2Q26 EarningsRmb337mnDown 8% year over year and 16% quarter over quarter, in line with lowered market expectations
• 2Q26 RevenueRmb14.3bnDown 9% year over year, mainly due to weak global automotive production
• 2Q26 Gross Margin17.8%Down 0.6 percentage points year over year and up 0.1 percentage points quarter over quarter
• 1H26 Overseas Revenue Contribution76%High overseas exposure facilitates the pass-through of raw-material costs to global automakers
• 2025-2028 Earnings per Share ForecastsRmb0.87/Rmb1.14/Rmb1.40/Rmb1.51Morgan Stanley ModelWare forecasts
• 2025-2028 Consensus Earnings per ShareRmb1.05/Rmb1.15/Rmb1.35/Rmb1.55Refinitiv consensus estimates
• 2025-2028 Net RevenueRmb61,183mn/Rmb64,609mn/Rmb69,089mn/Rmb72,930mnReport financial model forecasts
• 2025-2028 EBITDARmb5,215mn/Rmb5,418mn/Rmb6,080mn/Rmb6,363mnReport financial model forecasts
• 2025-2028 ModelWare Net ProfitRmb1,336mn/Rmb1,755mn/Rmb2,153mn/Rmb2,319mnReport financial model figures
• Target PriceRmb25.00Based on DCF valuation, implying 31% potential upside from the Rmb19.14 closing price
• Key DCF AssumptionsWACC 12.0%; medium-term growth rate 5%; terminal growth rate 3%WACC includes a 14.5% cost of equity and a 6.3% cost of debt
• AIDC Prototype TimelineAround SeptemberManagement expects prototypes such as PSUs, DC/DC converters, and CDUs to be ready by then

Impact & implications

The report believes that the high overseas revenue contribution helps Joyson Electronics maintain a relatively resilient gross margin amid weak global automotive demand, while AIDC provides a new application direction for its automotive power electronics technology. However, data centers' requirements for high power density and 24-hour continuous operation mean the technology must be recertified. In the near term, the new business therefore remains primarily a potential incremental opportunity rather than a confirmed earnings contribution.

Risks

• An upside risk is faster-than-expected integration of the automotive safety business.
• Solid progress in securing global orders for automotive electronics and safety systems could create upside.
• Winning new projects in humanoid robotics could provide an additional upside opportunity.
• A downside risk is higher-than-expected integration costs for the automotive safety business, which would increase the company's operating expenses.
• During business restructuring, new-order share may be lost to Autoliv and/or TRW.

What to watch

• Monitor the AIDC power-product prototypes that management expects to be ready around September.
• Monitor the recertification progress of AIDC products for high power-density and round-the-clock continuous-operation requirements.
• Monitor the pace of automotive safety business integration and related operating expenses.
• Monitor global order wins for automotive electronics and safety systems, as well as any share losses to Autoliv or TRW.
• Monitor progress on new projects in humanoid robotics.