OmniVision reported revenue of RMB8.12bn in 3Q26, up 3.8% YoY and 6.7% QoQ, near the upper end of company guidance. Net profit declined 8.7% YoY but increased 50.5% QoQ to RMB1.08bn, as GPM recovered 1.7ppts QoQ to 30.0% despite a further increase in lower-margin distribution sales. Although demand recovery in smartphone/auto CIS remains subdued, the margin improvement suggests that earnings have begun to emerge from cyclical trough. The company’s 4Q26 revenue guidance of RMB7.76-8.32bn implies -4.5% to +2.5% QoQ growth, while guided GPM of 29.4-30.7% points to broadly stable profitability. Maintain BUY with TP unchanged at RMB125 (33x 2027E P/E).

Mix improvement is beginning to outweigh distribution dilution. 9M26 semi design revenue declined 9.4% YoY to RMB16.35bn, while distribution revenue rose 55.7% to RMB5.69bn and reached 25.7% of sales. Based on our calculation, distribution accounted for ~30% of 3Q26 revenue. The recovery in consolidated GPM to 30% despite this unfavorable mix indicates a more substantial margin improvement within the design business, supported by higher-end CIS and value-added analog products. We see this as an encouraging sign as earnings recovery is increasingly driven by product upgrading rather than low-margin volume expansion.

Optical connectivity, edge AI and auto are emerging growth drivers. OmniVision is extending its analog expertise into TIA, laser drivers and silicon-based optical-interconnect devices. Certain high-speed opticalcommunication chips have entered production introduction, while broader scale-up is targeted for late-2027, per mgmt.. Machine vision, robotics and professional imaging should remain strong, while higher-end auto CIS & analog and flagship smartphone products support further mix improvement, in our view.

We view margin inflection as credible but likely gradual. Mgmt.’s 4Q26 guidance points to broadly stable revenue and margins QoQ, suggesting near-term earnings improvement will rely more on product-mix enhancement and cost discipline than a broad demand rebound. Maintain BUY with an unchanged TP of RMB125 as improving margins in higherend CIS and analog products are increasingly offsetting the dilution from the growing distribution business. Key risks include weaker-than-expected smartphone and auto shipments, slower new-product qualification, delays in emerging businesses, etc.