Highlights

• Estun continued to focus on high value orders in 3Q26, and as a result, revenue declined 12% yoy, but gross margins expanded 3.8ppt yoy to 34.1%. However, the bottom line was impacted by non-core items, and net profit only grew 22% yoy to Rmb19m.
   
• More importantly, management remains upbeat on profitability and provided solid updates on overseas sales growth. 
   
• Upgrade to BUY with a target price of Rmb35.70.
   

Analysis

• Margin expansion cushioned revenue shortfall. Revenue for the quarter declined 12.4% yoy to Rmb1,101m, while reported net profit rose 21.5% yoy to Rmb19m despite a Rmb22m fair-value loss on financial assets. Core net profit grew 133.3% yoy to Rmb46m. In 9M26, revenue fell 3.0% yoy to Rmb3,699m, while gross margin, operating margin and net margin expanded by 3.8ppt, 3.8ppt and 4.4ppt to 32.4%, 5.7% and 4.6%, respectively.
   
• Guidance: Management expects revenue growth to reach about 10% in full-year 2026, gross margin to be around 32%, and core net profit to reach Rmb200m. Going forward, Estun will continue to focus on profitability and targets a 1.0-1.5ppt increase in gross margins every year, and net margin to be above 5%.