UBS: Kehua Data – FY25 and 1Q26 Results Soft, but Overseas Expansion Set to Accelerate
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UBS maintains its Buy rating on Kehua Data while lowering the 12-month target price from RMB 74.70 to RMB 73.20. FY2025 net profit reached RMB 418 million, up 33% year-over-year, while Q1 2026 net profit was RMB 78 million, up 13%. Both figures missed market expectations, primarily due to softer-than-expected data center product shipments in China as domestic hyperscaler capital expenditure slowed.
Data center product revenue grew 17% in 2025 with gross margins stable at 32%. Renewable energy product revenue increased 5%, supported by accelerating battery energy storage system shipments, with gross margins expanding 1 percentage point thanks to a higher overseas sales mix. Overseas revenue share rose from 9% in 2024 to 13% in 2025, and overseas gross margin improved 1.6 percentage points to 41%.
Contract liabilities surged 51% and 47% year-over-year at end-2025 and end-Q1 2026, respectively, signaling a robust order pipeline. In late March, the company secured incremental orders from Alibaba worth RMB 80-100 million, split between UPS and liquid cooling products, with deliveries beginning Q2 2026.
UBS lowered 2026-2028 EPS estimates by 12%, 12%, and 7%, citing reduced data center shipment assumptions. Despite these cuts, the firm views current valuation as attractive at 28x 2027E price-to-earnings. Key catalysts include accelerating orders from domestic hyperscalers and overseas clients, along with progress on new HVDC and SST products. The DCF-derived target price applies a 6.8% WACC.