JPMorgan: Lingyi iTech (H) — FX Headwinds Mask Fundamental Improvement; New Projects to Drive Stronger 2H Earnings Growth
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JPMorgan maintains Overweight on Lingyi iTech (1688.HK), target price HKD11.00 through June 2027 (September 1 close: HKD6.34). Q2 2026 revenue was in line, up 3% year-on-year, but net profit of RMB372 million (up 2%) missed JPMorgan's forecast by 9%, mainly on larger-than-expected FX losses from RMB appreciation.
Beneath the FX noise, fundamentals improved: gross margin rose 1.9 percentage points to 16.9% as resources shift toward high-precision components, thermal management, and battery & power products. First-half thermal and battery & power revenue grew 43% and 13%; AI hardware contributed 81% of revenue and 85% of gross profit; automotive and low-altitude-economy revenue jumped 198% with gross margin up 12.1 points to 14.1%. JPMorgan trimmed 2026 estimates modestly for FX, kept 2027-28 broadly unchanged, and models a 36% earnings CAGR for 2025-28. Mass production of the iPhone 18 Pro/PM and Apple's first foldable iPhone from Q3 2026, plus AI thermal-project ramps, should drive a sharp second-half acceleration; Readore's Rubin liquid-cooling products (gross margin above 30%) and robotics are expected to add roughly RMB3 billion of 2026 revenue. The HKD11.00 target implies 15x 12-month forward P/E—about 20% below global peers and a 47% discount to the stock's A-share historical average.