Summary of Nexchip (688249.SS) Conference Call Company Overview - **Company**: Nexchip - **Ticker**: 688249.SS - **Industry**: Semiconductor, focusing on CIS, PMIC, Logic IC, and MCUs Key Financial Highlights - **3Q25 Revenue**: Rmb2.9 billion, representing a 23% year-over-year (YoY) increase and an 11% quarter-over-quarter (QoQ) increase, exceeding Goldman Sachs estimates by 9% [1][4] - **Gross Margin**: Improved to 26.1%, higher than Goldman Sachs estimate of 25.5% and last quarter's 24.3% [1][4] - **Operating Profit**: Rmb246 million, up 15% YoY and 49% QoQ, 12% above Goldman Sachs estimates [1][4] - **Net Income**: Rmb218 million, a significant increase of 137% YoY and 11% QoQ, although 11% below Goldman Sachs estimates due to unexpected non-operating losses [1][4] Product Diversification and Technology Migration - **Product Range**: Nexchip is diversifying its product offerings from DDIC to include CIS, PMIC, Logic ICs, and MCUs [1] - **Technology Nodes**: The company is migrating towards advanced technology nodes, including 40nm, 28nm, and 22nm, with trial production of 28nm logic ICs starting [1][4] - **Revenue Contribution**: Expected decline in traditional DDIC revenue contribution from 59% in 2025E to 53% in 2026E and 47% in 2027E, indicating a shift towards diversified revenue streams [1][4] Earnings Revisions - **Net Income Revisions**: 2025E net income revised down by 3% due to larger-than-expected non-operating losses, while 2026E and 2027E net income estimates increased by 1% each [6][7] - **Revenue Revisions**: 2025E-27E revenues increased by 3%, 1%, and 1% respectively, reflecting a more positive outlook on capacity ramp-up [6][7] Valuation and Price Target - **Target Price**: Increased by 14.6% to Rmb41.7, based on a target P/E of 62.0x for 2026E, which is at the high end of Nexchip's historical trading range [1][7] - **Current Valuation**: The stock is trading at a 54x 2026E P/E, with a fair valuation considering the average trading P/E of 31x since August 2023 [1][7] Risks and Considerations - **Key Risks**: Include slower or faster-than-expected capacity expansion, demand fluctuations in DDIC and CIS, R&D pace, and competitive intensity [15] Conclusion - **Rating**: Neutral, with a fair valuation and moderate upside potential to the target price [1][7]