Naura delivered solid 2Q25 results with revenue of RMB7.9bn, up 22% YoY but down 3% QoQ, due to a high base in 1Q25 (the second-highest quarter in company history) that led to seasonal fluctuations. Gross margin contracted to 41.3% (-6.0ppt YoY, -1.7ppt QoQ), primarily on low margin from electronic Components segment. Net profit came in at RMB1.6bn (-2% YoY, +3% QoQ), while net margin improved to 20.5% (vs. 18.8% in FY24 and 19.3% in 1Q25), indicating operational resilience and cost discipline. We remain constructive on Naura’s growth trajectory, forecasting revenue to grow by 32%/26% in 2025/26E, driven by its strategic role in China’s semiconductor equipment localization effort. Reiterate BUY with a TP of RMB460.

A domestic semicap leader riding the localization tailwind. We believe the growth of Naura's semiconductor equipment segment remains intact, with revenue exceeding RMB13bn in 1H25 (vs. RMB21bn+ in FY24, with an estimated market share of 5%+ domestically in our view). By product category, etching, deposition, thermal processing and cleaning equipment generated over RMB5bn, RMB6.5bn, RMB1bn, and RMB0.5bn, respectively in 1H25, per our estimates. These four categories accounted for 80%+ of total sales (vs. ~70% in 1H24) in 1H25. We estimate the semiconductor equipment sales increased by ~50% YoY in 1H25.

Accelerated platform expansion through R&D and acquisition, which should enhance market penetration and profitability. Naura has expanded into ion implantation market since March 2025 and introduced several 12-inch products. Meanwhile, the company has completed the acquisition of Kingsemi (688037 CH, NR), adding capabilities in coating/developing, bonding and cleaning equipment (Kingsemi's cleaning product sales were not included in Naura's 1H25 sales). Naura has obtained a 17.87% stake of Kingsemi, making it the largest shareholder, as of June 2025. We expect these efforts will drive strong semiconductor equipment sales growth of 47%/31% in 2025/26E, allowing Naura to gain market share through an expanded product portfolio while improving profitability from greater product synergies.

Maintain BUY, with a new TP of RMB460, based on 35x rolled-over 2026E P/E, in line with the 5-year historical average (previously 36.8x 25E P/E). We view Naura as the best-positioned player in China's semicap market, supported by its broad product portfolio and the accelerating drive for supply chain localization. Key risks include: (1) weaker-than-expected domestic　capex, (2) geopolitical　headwinds and supply chain disruptions,and (3) intensifying competition.