3Q26 earnings: Margin inflection takes shape

　　豪威集团(603501)

　　OmniVision reported revenue of RMB8.12bn in 3Q26, up 3.8% YoY and 6.7%QoQ, near the upper end of company guidance. Net profit declined 8.7% YoYbut increased 50.5% QoQ to RMB1.08bn, as GPM recovered 1.7ppts QoQ to30.0% despite a further increase in lower-margin distribution sales. Althoughdemand recovery in smartphone/auto CIS remains subdued, the marginimprovement suggests that earnings have begun to emerge from cyclical trough.The company’s 4Q26 revenue guidance of RMB7.76-8.32bn implies -4.5% to+2.5% QoQ growth, while guided GPM of 29.4-30.7% points to broadly stableprofitability. Maintain BUY with TP unchanged at RMB125 (33x 2027E P/E).

　　Mix improvement is beginning to outweigh distribution dilution. 9M26semi design revenue declined 9.4% YoY to RMB16.35bn, while distributionrevenue rose 55.7% to RMB5.69bn and reached 25.7% of sales. Based onour calculation, distribution accounted for ~30% of 3Q26 revenue. Therecovery in consolidated GPM to 30% despite this unfavorable mix indicatesa more substantial margin improvement within the design business,supported by higher-end CIS and value-added analog products. We see thisas an encouraging sign as earnings recovery is increasingly driven byproduct upgrading rather than low-margin volume expansion.

　　Optical connectivity, edge AI and auto are emerging growth drivers.OmniVision is extending its analog expertise into TIA, laser drivers andsilicon-based optical-interconnect devices. Certain high-speed opticalcommunication chips have entered production introduction, while broaderscale-up is targeted for late-2027, per mgmt.. Machine vision, robotics andprofessional imaging should remain strong, while higher-end auto CIS &analog and flagship smartphone products support further mix improvement,in our view.

　　We view margin inflection as credible but likely gradual. Mgmt.’s 4Q26guidance points to broadly stable revenue and margins QoQ, suggestingnear-term earnings improvement will rely more on product-mixenhancement and cost discipline than a broad demand rebound. MaintainBUY with an unchanged TP of RMB125 as improving margins in higherend CIS and analog products are increasingly offsetting the dilution from thegrowing distribution business. Key risks include weaker-than-expectedsmartphone and auto shipments, slower new-product qualification, delaysin emerging businesses, etc.