3Q26 earnings: Margin inflection takes shape

PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE MORE REPORTS FROM BLOOMBERG: RESP CMBR <GO> OR http://www.cmbi.com.hk 1 MN 29 Oct 2026 CMB International Global Markets | Equity Research | Company Update OmniVision (603501 CH) OmniVision (603501 CH) - 3Q26 earnings: Margin inflection takes shape 3Q26 earnings: Margin inflection takes shape 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% YoY but increased 50.5% QoQ to RMB1.08bn, as GPM recovered 1.7ppts QoQ to 30.0% despite a further increase in lower-margin distribution sales. Although demand recovery in smartphone/auto CIS remains subdued, the margin improvement 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 stable profitability. Maintain BUY with TP unchanged at RMB125 (33x 2027E P/E).  Mix improvement is beginning to outweigh distribution dilution. 9M26 semi design revenue declined 9.4% YoY to RMB16.35bn, while distribution revenue rose 55.7% to RMB5.69bn and reached 25.7% of sales. Based on our calculation, distribution accounted for ~30% of 3Q26 revenue. The recovery in consolidated GPM to 30% despite this unfavorable mix indicates a more substantial margin improvement within the design business, supported by higher-end CIS and value-added analog products. We see this as an encouraging sign as earnings recovery is increasingly driven by product 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 and silicon-based optical-interconnect devices. Certain high-speed optical-communication chips have entered production introduction, while broader scale-up is targeted for late-2027, per mgmt.. Machine vision, robotics and professional 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 4Q26 guidance points to broadly stable revenue and margins QoQ, suggesting near-term earnings improvement will rely more on product-mix enhancement and cost discipline than a broad demand rebound. Maintain BUY with an unchanged TP of RMB125 as improving margins in higher-end CIS and analog products are increasingly offsetting the dilution from the growing distribution business. Key risks include weaker-than-expected smartphone and auto shipments, slower new-product qualification, delays in emerging businesses, etc. Target Price RMB125.00 Up/Downside 46.7% Current Price RMB85.20 China Semiconductors Zhimin ZHOU (852) 3850 5268 zhouzhimin@cmbi.com.hk Kevin ZHANG (852) 3761 8727 kevinzhang@cmbi.com.hk Aaron GUO (852) 3916 3715 aaron