Faratronic (600563)

Equity Research 23 August 2026 | 5:55PM HKT

Faratronic (600563.SS): 2Q26 GPM came in 3pp above GSe, with further improvement expected into 2H26E; Buy

Faratronic reported 2Q26 results with overall resilient performance across end Jacqueline Du | markets. GPM arrived at 34.4% in 2Q26, coming in at 3pp above GSe, mainly due to Goldman Sachs (Asia) L.L.C. operational efficiency improvement, while company also saw limited shipment for low-margin EV products despite raw materials price hike pressure. We expect GPM to further improve in 2H26E as raw materials pressure from copper/tin prices and higher base film prices ease, while the company’s pricing actions will begin to take effect from 3Q26 onwards. We reiterate Buy on Faratronic for its resilient margin performance, and rising data center applications among industrial control segment. Our new 12-m TP is at Rmb154.8.

1H26 solar and ESS revenue recorded Rmb593mn (23% of total), +11% yoy, with 2Q26 revenue implying 9% yoy growth;

1H26 EV revenue recorded Rmb1,487mn (55% of total), +10% yoy, with 2Q26 revenue implying 14% yoy growth; overseas demand and China OEM exports grew faster than the domestic market, while the company remains disciplined on low-margin projects.

1H26 industrial control revenue recorded Rmb421mn (16% of total), +16% yoy, implying 2Q26 revenue growth of 12% yoy, with grid and data center power applications among the key growth contributors.

1H26 GPM recorded 33.1%, flat yoy. 2Q26 GPM arrived at 34.4%, +2.7pp qoq, and 2.6pp above our estimates, mainly due to operational efficiency improvement, while company also saw limited shipment for low-margin EV products despite raw materials price hike pressure. We expect GPM to improve sequentially in 3Q26 as raw material inflation moderates and pricing actions begin to take effect from 3Q26 onwards.

TP/EPS change: We revise up 2026-30E EPS by 3-9% on stronger than expected GPM with further improvement potential. Our new 12-m TP is now at Rmb154.8, still based on 2028E P/E of 22x, discounted to 2027E with a COE of 10.5%.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Goldman Sachs Faratronic (600563.SS)

Exhibit 1: Faratronic financial summary

Prior Faratronic 1Q25 2Q25 3Q25 4Q25 1Q26 2Q26 yoy qoq 2Q26 Diff (600563.SS) GSe Revenue (Rmb mn) 1,204 1,296 1,445 1,383 1,284 1,479 14% 15% 1,335 11% Gross profit (Rmb mn) % 25% 424 20% EBIT (Rmb mn) % 16% 294 18% Net profit (Rmb mn) % 17% 268 17% EPS (Rmb) % 17% 1.19 17% Gross margin 31% 35% 33% 30% 32% 34% 0pp 3pp 32% 3pp EBIT margin 22% 25% 23% 20% 23% 23% -1pp 0pp 22% 1pp Net margin 22% 24% 22% 22% 21% 21% -2pp 0pp 20% 1pp

Source: Company data, Goldman Sachs Global Investment Research

Investment thesis, valuation methodology and risks

Faratronic is the No.1 film capacitor supplier globally, with an 18% market share in 2025. We are Buy rated on the stock as we like its (1) highly competitive product offerings in the NEV market which are well positioned to gain share, with potential for content value increase with EV controller design upgrades; (2) scale advantage and in-house production capabilities translating to an industry-leading margin profile; (3) employee-owned structure highly aligning management/company interests with shareholders. The company has also demonstrated strong pricing power and a track record of improving GPM from 36.5% in 2011 to 44.1% in 2020, where we expect the company to largely offset raw materials price hike with internal measures going forward. We see industrial control as a new highlight, and expect growth to pick up in the next few years, driven by AIDC, power grid and railway applications. We view valuation as attractive, trading against 17%/19% revenue/net income CAGRs in…