Key takeaway

The company’s 1H26 results were broadly in line with expectations, with revenue achieving steady growth; capacity ramp-up accelerated in the new energy vehicle parts business, while construction continued at its Anhui and Thailand facilities, providing key support for revenue growth. Profitability came under slight pressure due to foreign exchange losses and other factors. The company released a draft equity incentive plan covering its core employees, with reasonable and prudent performance targets, demonstrating confidence in its long-term development. The linear motion components business accelerated, with products such as ball screws and linear guideways already achieving mass deliveries, which could provide earnings upside; we maintain our “Buy” rating.

Event

The company released its 1H26 report. In 1H26, the company recorded revenue of RMB792mn, up 10.57% YoY; net profit attributable to shareholders of the parent company was RMB146mn, down 1.53% YoY; net profit attributable to shareholders of the parent company excluding non-recurring gains and losses was RMB136mn, down 2.32% YoY. In 2Q26, revenue was RMB406mn, up 10.75% YoY; net profit attributable to shareholders of the parent company was RMB73mn, down 7.46% YoY; net profit attributable to shareholders of the parent company excluding non-recurring gains and losses was RMB68mn, down 8.65% YoY. The company’s results were broadly in line with expectations.

Quick Take

Revenue grows steadily as capacity ramps up

1) Growth: Revenue growth in 2Q26 was broadly unchanged from 1Q26, when revenue increased 10.38% YoY. In 1H26, automotive parts revenue reached RMB729mn, up 9.22% YoY and accounting for 91.97% of total revenue; capacity ramp-up accelerated in the new energy vehicle parts business, and Anhui BST generated revenue of RMB68.85mn, up 232% YoY. Phase I of Thailand Beiyonghua was completed in 4Q25 and generated revenue of RMB0.6325mn in 1H26; construction of Phase II commenced, with an additional investment of RMB32.70mn in 1H26.

2) Profitability: Gross margin was 32.96% in 1H26, down 1.75 pcts YoY but remaining relatively stable; net margin was 18.46%, down 2.25 pcts YoY; the administrative expense ratio was 8.67%, up 0.24 pct YoY, the R&D expense ratio was 3.30%, down 1.11 pcts YoY, and the financial expense ratio was 0.86%, up 0.89 pct YoY, mainly due to increased foreign exchange losses.

Draft equity incentive plan demonstrates confidence in steady long-term development In August 2026, the company proposed granting 4.8mn shares, representing 0.96% of its total share capital, to 228 core employees, who accounted for 15% of its total workforce, at a grant price of RMB10.55 per share; the shares will vest in three tranches of 30%, 30%, and 40%. At the company level, with 2025 as the base year, revenue or net profit growth must be no less than 10%, 25%, and 40% in 2026, 2027, and 2028, respectively. The plan has reasonable coverage and sets prudent and achievable performance targets.

Accelerating the development of linear motion components and expanding into emerging business segments. In January 2022, the company established Yuhua Precision Machinery, a wholly owned subsidiary, to build a comprehensive presence in linear motion components. It is aggressively expanding into mid- to high-end machine tools, industrial automation, intelligent connected vehicles, and other fields, rapidly entering new markets. In 1H26, Yuhua Precision Machinery recorded revenue of RMB2.99mn and a loss of RMB14.31mn, compared with revenue of RMB1.94mn and a loss of RMB9.23mn in 1H25. In terms of commercialization, the company's ball screw assemblies, linear guide assemblies, and other products are now used in certain machine tool models produced by well-known domestic machine tool manufacturers. The company has also secured volume delivery orders. It has achieved a breakthrough in C0-grade ball screw assemblies, which represent the highest level of ball screw assembly manufacturing, and received an initial order from a customer. Its ball screw assemblies for electromechanical brake (EMB) systems in new energy vehicles have completed sample delivery to customers, marking a key step from technological breakthrough to commercialization.

Investment recommendation: We forecast that the company's revenue will reach approximately RMB1.659bn, RMB1.821bn, and RMB2.0bn in 2026, 2027, and 2028, respectively. Net profit attributable to shareholders of the parent company is expected to reach RMB291mn, RMB337mn, and RMB367mn, corresponding to P/E ratios of approximately 31x, 27x, and 24x, respectively. Given the potential earnings upside from the company's expansion into linear motion components, we maintain our “Buy” rating.

Risks: Risks include cyclical fluctuations in the macroeconomy and automotive industry, exchange rate volatility, slower-than-expected customer acquisition, and slower-than-expected commercialization of new projects.