NAURA reported 1H26 revenue of RMB20.16bn (+24.9% YoY) and net profit of RMB3.37bn (+5.1%). In 2Q26, revenue reached RMB9.84bn (+24.0% YoY, - 4.7% QoQ) and net profit was RMB1.74bn (+6.6% YoY, +6.2% QoQ), both below Bloomberg consensus. Earnings growth lagged revenue due to higher R&D and selling expenses and GPM pressure. In 2Q26, GPM fell 1.4ppts QoQ to 39.3%, and mgmt. attributed the pressure to higher component iteration and upgrade costs during new-product validation and discounts to selected customers.

Positively, OCF reached RMB3.77bn in 1H26, supported by stronger collections. As China’s largest platform-based semiconductor equipment provider, NAURA remains well positioned for domestic substitution, while China’s WFE sector remains our top thematic pick. Correspondingly, we revise down our FY26/27E sales forecasts by -2.5%/-2.3% and GPM by -0.4/-1.1ppts. Maintain BUY with TP adjusted to RMB814, based on 52x 2027E P/E, 1-SD above its historical average.

Equipment growth remained broad-based, but segment margins declined in 1H26. Electronic process equipment revenue, including semiconductor and vacuum/new-energy equipment, rose 25.9% YoY to RMB19.20bn, accounting for 95.3% of total revenue; GPM fell 2.0ppts to 39.8%. The growth was driven by market share gains in etching, thin-film deposition, thermal processing and wet cleaning, volume shipments of ion implantation and track systems, and batch deliveries of bonding equipment. Kingsemi’s consolidation further broadened product coverage. Component revenue rose 5.5% YoY to RMB915mn, while GPM declined 4.2ppts to 46.2% amid stronger competition and downstream pricing pressure. NAURA is targeting higher-value applications, including AI computing, data centers and high-end industrial markets, to support its product-mix upgrade.

Higher spending supports product penetration but delays operating leverage. In 1H26, R&D expenses increased 28.9% YoY to RMB2.68bn, and selling expenses rose 63.5% YoY to RMB761mn due to larger sales and service teams and Kingsemi’s consolidation. These investments support qualification across additional process steps. New ICP etching, ion-beam etching, hybrid-bonding and high-end TSV electroplating systems expand NAURA’s exposure to advanced logic, memory and advanced packaging. Meanwhile, the improvement in OCF in 1H26 strengthened cash conversion.

Order indicators support revenue visibility while margin recovery remains the key earnings variable. In 1H26, inventory and contract liabilities reached RMB30.5bn and RMB5.3bn, up 6.7% and 26.6% QoQ, respectively, indicating a solid production pipeline and stronger customer prepayments. Key risks include slower product validation, intensifying price competition, persistent GPM pressure, weaker semiconductor capex, etc.