iFlytek (002230)

Equity Research 20 September 2026 | 9:46PM HKT

iFlytek (002230.SZ): Upgraded AI model to launch in Oct; 2Q26 rev miss on muted AI devices growth; Neutral

iFlytek targets to release an enhanced AI model based on the local computing Allen Chang | platform in Oct 2026, supporting its open platform growth, ToB AI enterprise Goldman Sachs (Asia) L.L.C. projects, and rising adoption of ToC AI devices despite near-term pressures of rising Verena Jeng memory cost. The company’s 2Q26 revenues were up 2% YoY to Rmb6.3bn, while | Goldman Sachs (Asia) L.L.C. 16% below our estimates, and we attribute it to slower-than-expected growth of its learning tablet. By segment, the enterprise AI and internet services delivered strong Ting Song | Goldman Sachs (Asia) L.L.C. growth at 34%/ 41% YoY, followed by smart automotive/ smart education revenues growth at 30%/ 24% YoY in 1H26. Due to continuous investment on AI platform, the Opex spending is higher than expected, resulting in OP loss of Rmb368m vs. our estimates of Rmb165m OP income. We expect to see sequential revenues growth in 2H26E, driven by gradual recovery in AI devices, expanding ecosystem and application scenarios of AI open platform, supported by upgraded AI model. Maintain Neutral.

Upgraded AI model to launch in Oct: iFlytek plans to release the new generation of its AI foundational model (iFlytek Spark) in Oct 2026, featuring the upgraded AI coding capability and higher price-to-performance ratio of the token. Management highlights the company’s AI model is based on the local computing chipset, and iFlytek continues to work on optimization to improve the computing efficiency with better performance, targeting key scenarios across education (AI learning tablet), medical, automotive, banks, productivity (AI meeting translation) etc.

Exhibit 1: iFlytek 2Q26 result snapshot 2Q26 2Q GSe vs GSe YoY QoQ 2Q25 1Q22 1Q26 Sales (Rmb mn) 6,349 7,551 -16% 2% 20% 6,253 3,506 5,274 GM (%) 40.4% 40.3% 0.1ppts 0.1ppts 1.4ppts 40% 41% 39% Gross profit 2,565 3,042 -16% 2% 25% 2,518 1,421 2,055 Opex ratio 46% 38% 8.1ppts 4.8ppts -3.5ppts 41% 45% 50% Operating profit (Rmb mn) (368) 165 na 423% -35% (70) (162) (567) OPM (%) -5.8% 2.2% -8ppts -4.7ppts 4.9ppts -1.1% -4.6% -10.7% Net income (Rmb mn) (34) 259 -113% -25% -80% (46) 111 (170)

Source: Company data, Goldman Sachs Global Investment Research

Earnings revision: We factor in iFlytek 2Q26 results and revise down earnings by 14%/ 13%/ 7% mainly on lower revenues and higher Opex ratio. We revise down revenues mainly on weaker-than-expected AI devices while remain positive on the long-term adoption ahead, and revise up Opex ratio to reflect higher R&D expenses.

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Goldman Sachs iFlytek (002230.SZ)

Exhibit 2: Earnings revision 2026E 2027E 2028E Rmb m Old New Diff (%) Old New Diff (%) Old New Diff (%) Revenue 32,572 30,984 -5% 38,727 36,420 -6% 43,442 41,672 -4% Gross profit 13,200 12,463 -6% 16,286 15,163 -7% 18,156 17,294 -5% Op. income 884 694 -21% 2,575 2,197 -15% 4,232 3,874 -8% Net income 1,480 1,266 -14% 2,751 2,396 -13% 4,658 4,342 -7% GM 40.5% 40.2% -0.3ppts 42.1% 41.6% -0.4ppts 41.8% 41.5% -0.3ppts OPM 2.7% 2.2% -0.5ppts 6.6% 6.0% -0.6ppts 9.7% 9.3% -0.4ppts NM 4.5% 4.1% -0.5ppts 7.1% 6.6% -0.5ppts 10.7% 10.4% -0.3ppts Source: Company data, Goldman Sachs Global Investment Research

Valuation: Our target price is derived from a DCF-based methodology (unchanged) to capture long-term cash flow generation. We model stage 2 FCF growth in 2032E-2036E at 12% YoY (rolled over the base year from 2026E to 2027E), and terminal growth at 2%, which is consistent with our China Tech coverage. We discount the value at a WACC of 11.5%, with a COE…