1H26 earnings preview: largely on track; HSD sales to accelerate in 2H26

1H26 earnings preview: largely on track; HSDsales to accelerate in 2H26 Target PriceHK$7.80Up/Downside69.2%Current PriceHK$4.61 Maintain BUY.We project Horizon’s 1H26Erevenue to surge 44% YoY andGPM to be 60.4%. We estimatethe companyto turnprofitable at net level,thanks to the fair value gain from convertible loans. We expect adjusted net lossto narrow by RMB0.2bn YoY to RMB1.1bn in 1H26E.We maintain our FY26Erevenue of RMB6.0bnand we expect HSD sales to accelerate from 2H26. ChinaAuto We project 1H26 revenue to rise 44% YoY and GPM to be 60.4%.Weproject Horizon’ssales volume to rise 16% YoY to 2.29mn unitsin 1H26E.We also expect its production solution averageselling price (ASP) to rise by24% YoY to RMB488in 1H26Ewith better product mix, especially aided byHorizon SuperDrive (HSD).Assuming license and service revenue reachesRMB1bn in 1H26E, we project Horizon’s total revenue to surge 44% YoY toRMB2.26bnin 1H26E. We project its gross margin to narrow by 5pptsYoYto 60.4% in 1H26E, as high-margin license and service businesses makeup a smaller portion of total revenue. Ji SHI, CFA(852) 3761 8728shiji@cmbi.com.hk Wenjing DOU, CFA(852) 6939 4751douwenjing@cmbi.com.hk Austin Liang(852) 3900 0856austinliang@cmbi.com.hk Weproject Horizon’s operating loss to narrow slightly YoY to RMB1.5bn byassuming R&Dand SG&A expenses rising 13%YoY and 11%YoY,respectively.We also estimate a fair value gain of RMB6.3bn fromconvertible loans, as Horizon’s share price fell from HK$8.66 on 31 Dec2025 to HK$4.08 on 30 Jun 2026.Therefore,we project Horizon’s net profitto be RMB4.8bn in 1H26. Accordingly, we estimate adjusted net loss tonarrow by RMB0.2bn YoY to RMB1.1bn in 1H26E. We expect HSD sales to accelerate from 2H26.While HSD’spenetrationat Changan(000625 CH, NR)and Chery(9973 HK, NR) appears to be a bitslower than we expected, we believe BYD (002594 CH/1211 HK, BUY/BUY)could accelerate Horizon’s HSD sales from 2H26, especially from 4Q26.Inaddition, we expectHorizon’s cockpit-driving fusion SoC to help expandclient base and aid its HSD sales.While some investors have raisedconcerns about proprietary chipsmadeby automakers, we arenottoo muchworried, as elaborated in detail in ourreportpublishedon9 Jul 2026. Valuation/Key risks.We maintain BUY rating and our target price ofHK$7.80, which is basedon 10x (unchanged) FY27EP/S.Key risks to ourrating and target price include lower sales volume, especially for HSD,slowerindustrywide smart driving penetration and more intensifyingcompetition than we expect, as well asa sector de-rating. Source: FactSet Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in this report: (1) allof the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listedcompanies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report.CMBIGM or its affiliate(s) have investment banking relationship with the issuers covered in this report in preceding 12 months. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of+15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 monthsCMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International CapitalCorporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important Disclosures There are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGMdoes not provide individually tailored investment advice. This report has been prepared without regard to the