Company Coverage
Pateo Connect Technology (2889 HK): 1H26: Core Results In Line, But GAAP Bottom-line Pressured By Share-based Compensation
BUY (Maintained)
Current price:
Target price:
Upside:
HK$147.90
HK$350.00
+136.6%
Analyst
Highlights
- 2Q26 results met estimates with revenue growing 105% yoy to Rmb2,228m and adjusted net loss decreasing 36% yoy to Rmb103m. GAAP net loss increased 34.5% yoy to Rmb306m, due to share-based compensation.
- We increase our 2026 GAAP net loss estimate by 103%, and slash 2027-28 GAAP net profit forecasts by 77%/21% respectively to reflect the Rmb250m p.a. of share-based compensation. We keep our 2026 adjusted net loss estimate, and lift 2027-28 adjusted net profit projections by 6%/3% respectively to factor in the CME acquisition.
- Risks: Repaying the Rmb2.4b in short-term bank loans and funding the Rmb1.4b CME acquisition with Rmb1.6b in cash and cash outflow.
- Maintain BUY with target price of HK$350.00 pegged to 4.0x 2027F PS.
Analysis
- 2Q26 results met expectations with revenue growing 105% yoy to Rmb2,228m and adjusted net loss decreasing 36% yoy to Rmb103m, vs our estimated revenue of Rmb7b and net loss of Rmb244m for full-year 2026. GAAP net loss increased 34.5% yoy to Rmb306m, larger than our estimated full-year GAAP net loss of Rmb244m, due to share-based payments.
- Revenue doubled yoy, in line with estimates, driven by smart cockpit and AI-related solutions. Smart cockpit solution revenue surged 97% yoy to Rmb1,988m (89% of total revenue), while AI-related solution revenue spiked 589% yoy to Rmb209m (9% of total revenue).
- Gross margin remained flat hoh at 11.5%, down 2.8ppt yoy, in line with our expectation. The gross margin erosion was due to new smart cockpit projects being at an early stage of expansion, and the launch of new capacity that raised depreciation expenses as a percentage of revenue.
Highlights
- 2Q26 results met estimates with revenue growing 105% yoy to Rmb2,228m and adjusted net loss decreasing 36% yoy to Rmb103m. GAAP net loss increased 34.5% yoy to Rmb306m, due to share-based compensation.
- We increase our 2026 GAAP net loss estimate by 103%, and slash 2027-28 GAAP net profit forecasts by 77%/21% respectively to reflect the Rmb250m p.a. of share-based compensation. We keep our 2026 adjusted net loss estimate, and lift 2027-28 adjusted net profit projections by 6%/3% respectively to factor in the CME acquisition.
- Risks: Repaying the Rmb2.4b in short-term bank loans and funding the Rmb1.4b CME acquisition with Rmb1.6b in cash and cash outflow.
- Maintain BUY with target price of HK$350.00 pegged to 4.0x 2027F PS.
Analysis
- 2Q26 results met expectations with revenue growing 105% yoy to Rmb2,228m and adjusted net loss decreasing 36% yoy to Rmb103m, vs our estimated revenue of Rmb7b and net loss of Rmb244m for full-year 2026. GAAP net loss increased 34.5% yoy to Rmb306m, larger than our estimated full-year GAAP net loss of Rmb244m, due to share-based payments.
- Revenue doubled yoy, in line with estimates, driven by smart cockpit and AI-related solutions. Smart cockpit solution revenue surged 97% yoy to Rmb1,988m (89% of total revenue), while AI-related solution revenue spiked 589% yoy to Rmb209m (9% of total revenue).
- Gross margin remained flat hoh at 11.5%, down 2.8ppt yoy, in line with our expectation. The gross margin erosion was due to new smart cockpit projects being at an early stage of expansion, and the launch of new capacity that raised depreciation expenses as a percentage of revenue.
BUY (Maintained)
Current price:
Target price:
Upside:
HK$147.90
HK$350.00
+136.6%
Analyst
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This report is provided subject to, and must be read together with, the full Disclosures / Disclaimers available at this link, which are incorporated by reference into this report. In particular, this report is intended for general circulation and informational purposes only and does not constitute personal investment advice or a recommendation to buy or sell any investment product or security. You should independently evaluate the information and, where necessary, seek advice from a qualified financial adviser regarding the suitability of any investment. Analyst certifications required under applicable regulations, including SEC Regulation AC (where relevant), are included in this report. By accessing, receiving or using this report, you acknowledge that you have read, understood and agreed to be bound by the Disclosures / Disclaimers, as may be amended, supplemented or updated from time to time.
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