旭升集团2026年上半年业绩符合预期；估值改善，评级上调为持有

China Autos &Auto Technology 1H26 Results In Line; Upgrade to Holdon Improved Valuation Wei Huang Research Associate +852-2203-7057 Support EarningsBroadly in linewithmarket expectations,Xusheng1H26 reported that netprofit increased 18% YoY to RMB 238 million.The solid earnings growth was primarilydrivenbya16%YoYincreasein revenuetoRMB2.43billion,supported bygrowthinthecompany'scoreautopartsbusiness.Autopartsrevenueincreased14%YoYto RMB 1.94billion, which we attribute to a 27%YoY increase in Tesla's Chinaproductionvolume in1H26(Teslaaccountedfor~30%of Xusheng'srevenue in2025).Grossmargin expanded0.9pptsYoYto22.7%,supportedbyalow-single-digitincrease in energy storage gross margin to 46.4%, drivenby:a)the continuedramp-upof batteryhousingproduction capacity;and b)inventory holdinggainsamid a ~19% YoY increase in aluminum prices,as Xusheng's rapid price-adjustment mechanism allowed sellingpricestoreflecthigherrawmaterial costswhile CoGS continuedto benefit from lower-cost aluminum inventory.Taking intoaccountthecompany'slatestresults,wemaintainourfull-year2026forecastsandDCF-derived target price of RMB 13.5 unchanged.Following the results,wewithXusheng'ssharepricedown~30%YTDversusabroadlyflatSHCOMPIndex,weupgrade the stock from Sell to Hold. Research Analyst+852-220-35496 KeychangesRating 2Q26NetProfit SlightlyDeclinesSequentiallyonHigherShare-BasedCompensation Xusheng's2Q26netprofit increased7%YoYbutdeclined10%QoQtoRMB113million. The sequential decline was primarily attributable to higher operatingexpenses,withadministrativeandR&Dexpensesincreasing21%and33%QoQ,respectively, mainly due to higher share-based compensation. Underlyingoperationsremainedbroadlystablesequentially,withrevenuedeclining1%QoQtoRMB1.21billion and gross margin narrowing0.4ppts QoQto22.5%. Global CapacityExpansionCouldSupportOverseasGrowthandMarginUpside Xusheng continuesto expand itsglobal manufacturingfootprint,building on itsdomestic R&D and production capabilities while accelerating capacityconstruction in Mexico and Thailand to establish a"China +North America +SoutheastAsia"productionnetworkin1H26.TheMexicofacilityhascommencedproduction andis currently ramping up,with product yield,production efficiency, Autos & Auto TechnologyXusheng AmericanNEV and energy storage customers.Meanwhile,construction oftheThailand facility hasbeencompleted,withequipment installation andcommissioning,productionlinedeployment, and operational preparationsprogressing.The facility will focus on key NEVcomponents, intelligent aluminumandmagnesiumalloymechanicalcomponents,androbotics-relatedproducts.WebelievetheoverseasexpansioncouldpotentiallysupportXusheng'srevenuemixand profitability if the company increases its overseas revenue contribution from~44%in1H26,givenoverseasgrossmarginof29.8%wassubstantiallyhigherthandomestic gross margin of 17.2%, which remained under pressure from intensecompetition in China's auto industry. Ourtarget price is derived from a discounted cash flow (DCF)analysis,whichwe thinkis themostappropriate methodforvaluing an early-stage, growing company.We use a 5-year forecast time horizon for our DcF, which captures the fullmaturation of the two mega trends of China's auto industry-electrification andintelligentization.We apply a 9.4% WAcC for our equity valuation.Our keyassumptions include a 2.4% cost of debt, a 2.5% risk-free rate, a 6.0% market riskpremium,beta of1.3,a11.5%incometaxrate,an88.0%equitylequity+debtratio,anda 0.5%terminal growthrate (TGR), consistentwith our regional coverage.Ourtargetprice implies a20.8x2026EP/E,belowthecompany'slong-termaverageof~29x. Keyupsiderisksare:(a)afaster-than-expectedramp-upoftheMexicoandThailandproduction bases, driving a higher overseas revenue contribution and a moredownsiderisksare:(a)weaker-than-expectedsalesvolumes atdownstreamcustomers;and (b)greater-than-expected margin pressure due to intensifiedofoverseasproductioncapacity. Autos &Auto TechnologyXusheng Reuters: 603305.sS Xusheng is a leading aluminum alloy auto parts supplier, mainly for new energy vehicles. In 2022, 34% of Xusheng'srevenuecamefrom Tesla globaloperation.Xusheng alsosupply to other Chinese new energy vehicle makers, likeBYD, NIO, GAC AION, XPeng, Li auto, Leapmotor, etc. Cash Flow (CNYm)Cash flow from operations BalanceSheet(CNYm) KeyCompanyMetrics Wei Huang+852 2203 7057huang.wei@db.com Appendix 1 Important Disclosures *Other information available upon request mportant risk andconflictdiurescanalsobefoundathttp ImportantDisclosuresRequiredbyU.S.RegulatorsDisclosures marked with an asterisk may alsobe requiredby at least one jurisdiction inadditionto the United States.See ImportantDisclosuresRequiredbyNon-UsRegulators and ExplanatoryNotes. ImportantDisclosuresRequiredbyNon-U.S.RegulatorsDisclosures marked with an asterisk may alsobe requiredby at least one jurisdiction in additionto the United States.See ImportantDisclosuresRequiredbyNon-UsRegulators and ExplanatoryNotes. Fordiscl