CXMT's Impressive Growth Outlook Fails to Impress Investors
Despite a promising performance forecast, shares of Chinese DRAM manufacturer CXMT, a notable competitor to Samsung Electronics and SK Hynix, continued their downward trajectory. As the industry advances in next-generation memory technology and production expansion, overseas investment banks (IB) have presented diverging views on the company's recent quarterly performance. While Goldman Sachs raised its price target, citing better-than-expected results, UBS lowered its target, arguing that net profit fell short of expectations.
On the Shanghai Stock Exchange, CXMT's shares closed at 40.32 yuan, a 2.89% decline from the previous trading day. This marked a two-day drop of 10.4% since the initial trading day following the performance announcement, where shares fell 7.77%. Compared to its all-time high of 61.80 yuan on August 17th, CXMT's current price represents a substantial 34.8% decrease.
With projected revenue for the first nine months surpassing eight times that of the previous year, and an expected 1-4% increase in net profit quarter-over-quarter, CXMT's performance has been met with mixed reactions from international investors. As the commercialization of next-generation memory technologies gains momentum, the market's response to CXMT's growth story remains a topic of interest.
CXMT's Rising Interest and Technological Advances
The growing interest in CXMT is fueled by expectations that it can narrow the technology gap with South Korean memory companies. According to a report by SEMI China on December 12th, CXMT plans to unveil its server-based DDR5 memory product utilizing the next-generation D-RAM design technology, '4F²', by the end of the year. However, there are cautious evaluations regarding its commercialization speed. In a report by Dow Jones on December 15th, UBS analyst Nicholas Gaudois suggested that the products released this year may be at the sample stage, requiring further development to enhance performance and efficiency.
Rapid Business Expansion
CXMT's performance forecast, released on the evening of December 16th, indicates a significant growth in revenue. The company expects its revenue for the first nine months of the year to reach between 265 billion and 270 billion yuan, approximately 8.3 to 8.4 times the 32.084 billion yuan recorded during the same period last year. The net profit attributable to shareholders is projected to be between 131 billion and 132.5 billion yuan, a turnaround from the 5.28 billion yuan net loss during the previous year's corresponding period. These figures are preliminary and have not undergone external auditing.
CXMT's Strong Performance: AI-Driven Growth and Market Dynamics
The company attributes its improved performance to the growing demand for AI computations, which has led to a shortage of D-RAM supply and subsequent price increases. Through capacity expansion and process enhancements, CXMT has increased wafer output, achieving high utilization rates and improved product mix, contributing to its impressive results. The combination of favorable market conditions and increased in-house production has propelled its financial performance.
When examining the recent quarter, there is a notable disparity in the pace of growth between revenue and profits. CXMT's third-quarter revenue, estimated at $11.469 billion to $11.969 billion, and net profit of approximately $5.3395 billion to $5.4895 billion, when subtracted from its cumulative performance forecast for the first half, indicate a faster increase in revenue compared to net profit. According to calculations by memory market research firm CFM, the revenue growth rate quarter-over-quarter is 15.3% to 20.3%, while the net profit growth rate is only 1.0% to 3.9%. Revenue is expected to grow by double digits, while net profit will see a modest increase from the previous quarter.
Goldman Sachs has praised these results, which exceed its own forecasts. According to a report by financial media outlet Cailun News on October 20th, CXMT's third-quarter revenue and net profit guidance midpoint was approximately 30% and 17% higher, respectively, than Goldman Sachs's estimates. The investment bank attributes this growth to the strong demand for AI-related D-RAM, customer diversification, and increased production capacity. As a result, Goldman Sachs has raised its target price from $129 to $130, maintaining its 'Buy' rating.
UBS's Contrasting Viewpoint
On the same day, financial media outlet AstaX reported that UBS lowered its target price from 80 yuan to 76 yuan, citing the company's third-quarter earnings guidance falling short of its own forecasts and market expectations. However, UBS maintained its "buy" rating. While both institutions retained their investment opinions, they differed in their assessment of the earnings meeting expectations, resulting in opposite adjustments to their target prices.
The earnings preview lacked detailed cost breakdowns to explain the relatively smaller increase in net profit compared to revenue growth, nor did it provide insights into the performance contribution of next-generation products. This makes it challenging to distinguish the effects of rising memory prices and the company's improved competitiveness based solely on the surge in cumulative earnings. The competitive pressure on Samsung Electronics and SK Hynix could vary depending on how much CXMT supplies its new products and the cost structure and profitability it achieves during the process.
