J.P. Morgan Wolong Electric (600580) 1Q26 Mixed: Margins Down, Underlying Trends Improving
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J.P. Morgan characterizes Wolong Electric's (600580) first-quarter 2026 results as mixed, with profitability under pressure despite positive underlying momentum. Revenue grew 8% year-over-year to 3.82 billion yuan, meeting expectations. However, gross margin contracted 2.5 percentage points to 22.3%, falling below forecasts due to an unfavorable product mix shift toward lower-margin offerings. Net profit declined 12% to 210 million yuan, though core net profit excluding one-off items remained roughly flat year-over-year.
Beneath the margin weakness, operational trends appear encouraging. New energy vehicle motor shipments surged 35% year-over-year, reflecting continued market share gains. Industrial motor orders grew 15%, signaling a recovery in downstream demand. Management expects second-quarter gross margin to improve sequentially, supported by easing raw material costs and a richer product mix.
J.P. Morgan maintains an Overweight rating with a target price of 18.5 yuan, based on 25 times 2026 earnings. The current share price trades at approximately 18 times 2026 earnings, below historical averages, which the firm views as attractive. The investment thesis hinges on accelerating NEV motor volume growth and industrial motor order recovery offsetting near-term margin headwinds. Key risks include weaker-than-expected downstream demand and raw material price fluctuations that could further compress margins before the anticipated second-quarter recovery materializes.
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