Highlights

• 1H26 bottom line surged on margin expansion, with net profit beating consensus estimates by 37.6% despite in-line revenue growth.
   
• Maintain BUY with a target price of HK$48.00.
  
   

Analysis

• 1H26 delivered strong bottom line results, supported by better-than-expected margins. Revenue grew 18.0% yoy but fell 25.0% hoh to US$1.6b, landing at the midpoint of the company's preliminary range (US$1.5b to US$1.7b) and matching consensus estimates. Gross profit margin came in at 11.2%, beating consensus estimates by 1.4ppt (-0.2ppt yoy, +1.7ppt hoh) on production yield improvements and stronger-than-expected pricing power, while operating margin stood at 6.8% which is 1.8 ppt above consensus forecasts (-0.2 ppt yoy, unchanged hoh), on operational efficiency gains. This drove net profit to US$90m (+33.3% yoy, -30.6% hoh), beating consensus estimates of US$65m by 37.6%, and above the midpoint of the announced US$85m to US$94m range. 
   

• We estimate that Cowell’s iPhone dollar content should have registered a low-teens % hoh decline due to pricing pressure but remained stable yoy. However, this is more than offset by improvements in production efficiency, as evidenced by the better-than-expected margin performance.