Empyrean (301269) Report Interpretation

Overview

This China AI Tour management update examines Empyrean's effort to broaden its EDA portfolio, deepen penetration with Chinese semiconductor customers and benefit from rising EDA localization demand. Goldman Sachs remains Neutral while highlighting product expansion and recovering spending from memory and foundry clients.

Core views

Goldman Sachs hosted Empyrean management in Beijing on September 10, focusing on product expansion, EDA localization and client-spending prospects. The company reported 2Q26 revenue growth of 16% year-on-year, versus 10% year-on-year in 1Q26. Management attributed the improving backdrop to order recovery from its major client and rising spending by memory and foundry customers; it expects major-client orders across EDA products to recover to the 2024 level during 2026. Empyrean already has full-flow coverage in analog, panel and memory EDA, and is extending its offering into digital design, foundry, PCB and advanced-packaging tools. Its expansion combines in-house development, supported by more than 1,500 R&D employees, with investment and acquisitions. Management identified Place and Route, optoelectronic-device simulation, design-for-test, formal verification and TCAD among the key tools. It expects coverage of all EDA-tool categories by end-2026, followed by performance improvements, with full-flow digital-design and foundry EDA tools targeted for launch by end-2027. Management also cited local suppliers' strengths in selected products such as 3DIC EDA tools. For digital-design EDA, management expects muted growth in 2026 after strong orders from local GPU and CPU companies in 2025, because individual orders typically run for about three years and the company is still building out a complete full-flow portfolio. Even so, management remains positive on the longer-term growth potential of China's digital-design EDA market and rising localization demand. AI features are being used to improve Empyrean's internal productivity and to enhance user efficiency across multiple tools, although management expects revenue contribution to take time. Goldman Sachs maintains a Neutral rating and a 12-month Rmb125.00 target price. The target is based on a discounted P/E methodology: a 45x multiple applied to 2029E EPS, discounted back to 2026E using an 11.5% cost of equity. The target multiple is derived from the average historical 12-month forward P/E of global EDA peers. The report's cited price was Rmb86.52 as of the September 11, 2026 close, implying 44.5% upside to the target.

Analysis framework

The report combines management commentary from the China AI Tour with recent revenue growth, customer-order trends and the company's stated product roadmap. It then values Empyrean by applying a peer-derived forward P/E multiple to 2029E EPS and discounting that value back to 2026E using a cost of equity.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Discounted P/E valuation

  Goldman Sachs applies a 45x multiple to 2029E EPS, based on global EDA peers' historical 12-month forward P/E, and discounts the resulting value back to 2026E using an 11.5% cost of equity.

• Competition & strategyValue chain analysis

  EDA product-portfolio and customer-segment expansion

  The report assesses Empyrean's position through coverage of EDA tool categories and its penetration of digital-design, memory and foundry customers.

Asset mapping & comparison

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

• Empyrean (301269.SZ)

  Primary covered EDA company; its product expansion and rising customer spending are central to the report.

  Strengths

  Existing full-flow analog, panel and memory EDA coverage; expansion into digital, foundry, PCB and advanced-packaging tools; more than 1,500 R&D employees.

  Weaknesses

  Digital-design EDA growth is expected to be muted in 2026 following strong 2025 orders and while the full-flow portfolio is still being built.

  Comparison

  The 45x target multiple is derived from global EDA peers' historical 12-month forward P/E.

  Risks

  Customer acquisition and average spending may change more slowly or quickly than expected; competition and talent availability or labor costs may also differ from expectations.

Key data

• 2Q26 revenue growth16% YoYAccelerated from 10% YoY in 1Q26.
• R&D employees1.5k+Supports internal development alongside investments and acquisitions.
• EDA category coverage targetEnd-2026Management expects to cover all categories of EDA tools by then.
• Full-flow digital and foundry EDA launch targetEnd-2027Expected after further product-performance improvement.
• 12-month target priceRmb125.00Based on discounted P/E valuation.
• Target P/E multiple45x 2029E EPSDerived from average historical 12-month forward P/E of global EDA peers.
• Cost of equity11.5%Used to discount the target value back to 2026E.
• Closing priceRmb86.52As of September 11, 2026 close; implied upside is 44.5%.

Impact & implications

The report argues that a broader full-flow EDA portfolio and greater localization demand could support market-share gains, while higher memory and logic-foundry spending provides an additional growth avenue. Near-term digital-design EDA growth may remain muted because of the multiyear duration of prior GPU and CPU customer orders.

Risks

• Customer acquisition and average spending per customer could increase more slowly or more quickly than expected.
• Competition could increase or decrease relative to expectations.
• Talent availability, labor costs or labor shortages could be better or worse than expected.