Key takeaway

In 2025, DAHUA INC recorded operating revenue of RMB32.744bn, up 1.75% YoY; net profit attributable to shareholders of the parent company was RMB3.858bn, up 32.77% YoY. In 1Q26, revenue was RMB6.902bn, up 10.33% YoY; net profit attributable to shareholders of the parent company was RMB698mn, up 6.81% YoY. The company's employee stock ownership plan has added an assessment for AI large model product revenue, with a 2025 base of RMB878mn and a required compound annual growth rate of no less than 50% for 2026- 2028, which is expected to drive the commercialization of AI large model products. Considering the gradual recovery of the macroeconomy with policy support, coupled with clear guidance for the company's AI large model business, we expect the company's performance to continue improving. For 2026-2028, we forecast operating revenue of RMB35.605bn/38.787bn/41.815bn, representing YoY growth of 8.74%/8.94%/7.81%, and net profit attributable to shareholders of the parent company of RMB3.969bn/4.511bn/5.134bn, representing YoY growth of 2.88%/13.65%/13.82%. This corresponds to a PE of 15x/13x/11x. We maintain Buy rating.

Event

In 2025, the company recorded operating revenue of RMB32.744bn, up 1.75% YoY; net profit attributable to shareholders of the parent company of RMB3.858bn, up 32.77% YoY; and adjusted net profit attributable to shareholders of the parent company of RMB2.730bn, up 16.28% YoY. In 1Q26, the company recorded operating revenue of RMB6.902bn, up 10.33% YoY; net profit attributable to shareholders of the parent company of RMB698mn, up 6.81% YoY; and adjusted net profit attributable to shareholders of the parent company of RMB589mn, up 16.93% YoY.

Risks

(1) Risk of technological upgrading: The smart IoT industry is a typical technology-intensive industry with extremely rapid upgrading and replacement. If the company cannot keep pace with the industry's technological development trends, fully address diverse and customized customer needs, or if subsequent R&D investment is insufficient, it will still face the risk of declining market competitiveness due to an inability to maintain continuous innovation capability. (2) Risk of business model transformation: With the development of technologies such as IoT, artificial intelligence, big data, cloud computing, and network communications, as well as the upgrading of smart terminal application methods, business models in the IoT era may impact traditional industry development. If the company cannot seize opportunities arising from business model transformation in a timely manner, it may face the risk of the existing market landscape being disrupted. (3) Risk of declining local fiscal payment capacity: Currently, high levels of local fiscal debt and declining payment capacity in some regions may lead to risks such as slowing industry demand growth, extended project construction periods, prolonged corporate capital recovery cycles, and delayed customer payments. (4) Exchange rate risk: In 2026, the global exchange rate landscape will show a persistently weak US dollar, profoundly affecting the pricing logic and balance-of-payments structure of international trade. The company's export sales are primarily settled