目录
I. Net Profit Beat, but Why Did Operating Profit Remain Weak?
II. How Much of the Gross-Margin Decline Can Be Explained by Upfront Investment?
III. How Large an Operating Step-Up Is Required in the Third and Fourth Quarters?
IV. Order Visibility Extends to 2027—but How Far Is It from Revenue?
V. Expansion Consumes Cash First; Returns May Not Emerge Until 2027
VI. The Price Target Was Cut from RMB455 to RMB367—What Changed in the Valuation?
VII. Five Numbers to Watch Next
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Victory Giant Technology’s second-quarter net profit exceeded expectations, but operating profit and gross margin both missed. Whether new-platform ramp-up can restore profitability in the third quarter will determine whether 2027 order visibility and capacity-expansion plans warrant a higher valuation.
I. Net Profit Beat, but Why Did Operating Profit Remain Weak?
The easiest mistake is to interpret net-profit growth as evidence that the core business strengthened in tandem. Victory Giant reported revenue of RMB6.11 billion, up 10.7% QoQ and 29.5% YoY. Growth remained strong, but revenue missed BofA’s forecast and pb consensus by 3.2% and 5.8%, respectively. Demand continued to expand, but the pace of volume growth was slower than previously expected.
Operating profit provides a better measure of core operating quality. Second-quarter operating profit was RMB1.532 billion, down 1.0% QoQ but up 8.3% YoY. This was 7.8% below BofA’s forecast and 16.4% below consensus. With revenue rising nearly 30% YoY but operating profit increasing only 8.3%, the incremental revenue generated materially less profit than a year earlier.
Net profit reached RMB1.568 billion, up 21.7% QoQ and 28.3% YoY, beating BofA’s estimate and consensus by 9.6% and 4.4%, respectively. BofA attributed most of the upside to higher fair-value gains. Such gains can lift reported earnings for the period, but they do not demonstrate improvement in orders, capacity utilization, or product mix. Operating profit and gross margin therefore provide more useful signals of an operating inflection than net profit.
Gross margin provides a second layer of evidence. Second-quarter gross margin was 32.1%, down 2.4 percentage points QoQ and 6.7 percentage points YoY. Revenue growth did not offset cost pressure, indicating that the company absorbed additional labor, depreciation, and ramp-up costs during the platform transition. The income statement already reflects the cost of capacity expansion, while the contribution from that capacity remains to be confirmed in subsequent quarters.
II. How Much of the Gross-Margin Decline Can Be Explained by Upfront Investment?
Management’s explanation follows a clear timeline. The company hired ahead of the new-platform ramp, increasing headcount by more than 30% QoQ in the second quarter. Depreciation on new capacity also began. Costs had therefore entered the income statement before revenue fully reflected the new platform’s contribution, creating a temporary margin trough.
The explanation depends on three conditions. First, the new workforce must reach stable production in the third quarter rather than continue depressing output per employee. Second, utilization of the new equipment must rise quickly so that depreciation is absorbed by a larger revenue base. Third, the share of higher-value PCB products—including high-layer-count and high-density interconnect boards—must increase sufficiently for mix improvement to offset ramp-up losses.
BofA expects the Vera Rubin-related platform to begin ramping in the third quarter. Vera Rubin is NVIDIA’s next-generation AI computing platform and requires more complex high-speed PCBs within its servers. Higher layer counts, faster transmission speeds, and greater manufacturing complexity increase PCB content per server. Victory Giant’s earnings leverage depends on shipment growth and higher content per server occurring simultaneously.
Competition could weaken this transmission mechanism. As more PCB manufacturers enter NVIDIA’s supply chain, customers gain more choice, potentially affecting pricing, share, and certification timelines. BofA therefore cut its 2026 earnings forecast by 7% and reduced its 2027–2028 forecasts by approximately 1%–3%. The larger near-term revision indicates that cost mismatch is the primary short-term explanation; the reductions to longer-term forecasts show that competitive pressure has not disappeared.
Upfront near-term costs and intensifying long-term competition can coexist. A third-quarter gross-margin recovery would demonstrate improved capacity utilization, but would not by itself prove that the company’s market share is secure. If revenue accelerates while gross margin remains near 32%, the earnings quality of incremental orders will need to be reassessed. The platform-transition thesis would receive stronger support only if revenue, gross margin, and operating profit improve together.
III. How Large an Operating Step-Up Is Required in the Third and Fourth Quarters?
BofA’s quarterly model is aggressive, making it particularly useful as a benchmark. It forecasts third-quarter revenue of RMB8.267 billion, up 35% QoQ; operating profit of RMB2.206 billion, up 44%; and gross margin recovering to 32.9%. Fourth-quarter revenue is projected to rise further to RMB11.561 billion, up 40% QoQ; operating profit to RMB3.44 billion, up 56%; and gross margin to 35.1%.
This path requires two consecutive step-ups. The third quarter must demonstrate that the new platform is beginning to contribute revenue, while the fourth must show continued improvement in capacity utilization and product mix. A delay at either stage could push full-year earnings below the model. BofA’s own 2026 net-profit forecast of RMB7.689 billion is already 7% below its previous estimate and 10.7% below consensus. The report retains a positive rating while using a more cautious earnings model than the market—a combination investors should note.
