On the evening of October 19, Xi'An Eswin Material Technology Co.,Ltd. (ASX: 688783) released its 2026 third-quarter report.
The financials show that in the first three quarters, Xi'an Eswin achieved operating revenue of 2.651 billion yuan, up 37.16% year-on-year; net profit attributable to shareholders was 151 million yuan, turning a profit from a loss.
In the third quarter, the company's operating revenue was 1.062 billion yuan, up 68.50% year-on-year; net profit attributable to shareholders was 441 million yuan, up 302.55% year-on-year.
On the surface, the company appears to have reached a long-awaited profit turning point.
However, in the first three quarters, Xi'an Eswin's non-recurring net profit attributable to shareholders was -473 million yuan, and in the third quarter the non-recurring net profit attributable to shareholders was -153 million yuan.
The 625 million yuan gap between the first three quarters' net profit attributable to shareholders and non-recurring net profit attributable to shareholders mainly came from unrealized gains on fair value changes of strategic placement equity, and the core business remains deeply loss-making.
Book profit turning is not a profit turning point.
Where exactly does Xi'an Eswin's real profit repair logic lie?
On October 20-21, regarding product structure, capacity, depreciation and other issues, a letter was sent and calls were made to Xi'an Eswin.
As of press time, the other party had still not replied to the relevant questions.
This report will break down Xi'an Eswin's seemingly impressive third-quarter report from five dimensions: financial quality, business operations, industry competition, risk factors, and valuation pricing.
Financials: Book Profit Comes from Equity Investment Unrealized Gains, Core Business Loss Narrows but Has Not Yet Crossed the Profit-Loss Line
1.1 Revenue side: shipment volume drives revenue growth, long-term order price locking delays price increase benefits.
Xi'an Eswin focuses on the R&D, production and sales of 12-inch semiconductor silicon wafers, with products including polished wafers and epitaxial wafers used in memory chip and logic chip manufacturing.
As of the end of the third quarter of 2026, its product shipments exceeded 1.1 million wafers per month, ranking first in China and sixth globally in the 12-inch silicon wafer field.
As a leading domestic 12-inch silicon wafer enterprise, Xi'an Eswin has formed a core technology system across five major process stages: crystal pulling, shaping, polishing, cleaning and epitaxy.
Its core indicators such as crystal defect control level, low warpage, ultra-flatness, ultra-cleanliness, and epitaxial film morphology and electrical performance have reached the same level as the world's top five manufacturers, but there is still a certain gap overall compared with leading overseas enterprises.
The financials show that from 2023 to 2025, Xi'an Eswin's operating revenue grew 39.73%, 43.95% and 24.88% year-on-year respectively, all maintaining double-digit growth.
In the first three quarters of 2026, Xi'an Eswin's operating revenue was 2.651 billion yuan, up 37.16% year-on-year, higher than the 22% year-on-year growth in the first half.
Among this, third-quarter operating revenue was 1.062 billion yuan, up 68.50% year-on-year, with growth momentum significantly strengthening.
In the first three quarters, Xi'an Eswin's product sales volume was 8.3 million wafers, up 42.72% year-on-year, with sales volume growth outpacing revenue growth.
Specifically, in the first half of 2026, Xi'an Eswin's product sales volume was 5 million wafers, revenue was 1.589 billion yuan, and the average price per wafer was 317.78 yuan per wafer.
In the third quarter of 2026, Xi'an Eswin's product sales volume was 3.31 million wafers, achieving revenue of 1.062 billion yuan, with an average price per wafer of 320.85 yuan per wafer, up 0.97% from the first half.
At present, Xi'an Eswin's production lines maintain full utilization, and this round of revenue expansion is mainly driven by shipment volume.
Affected by historical long-term orders locking in the vast majority of 2026 delivery volume, the spot price increase benefits have not yet been fully reflected in the financial statements, and price pass-through is lagging.
1.2 Profit side: net profit attributable to shareholders turns profitable thanks to equity investment unrealized gains, core business loss situation remains unchanged.
As a semiconductor silicon wafer enterprise with heavy asset investment, Xi'an Eswin has been in a state of huge losses for the past five years.
The financials show that from 2021 to 2025, Xi'an Eswin's net profit attributable to shareholders was -347 million yuan, -412 million yuan, -578 million yuan, -738 million yuan and -738 million yuan respectively, with cumulative losses of 2.813 billion yuan.
In the first half of 2026, Xi'an Eswin's net profit attributable to shareholders was -289 million yuan, and non-recurring net profit attributable to shareholders was -320 million yuan, continuing the loss-making state.
In the third quarter, Xi'an Eswin's net profit attributable to shareholders was 441 million yuan, and non-recurring net profit attributable to shareholders was -153 million yuan, with a difference of about 594 million yuan between the two.
In the third quarter, Xi'an Eswin's net profit attributable to shareholders turned profitable mainly because the company participated in the IPO strategic placement of downstream customers, bringing gains from fair value changes of trading financial assets.
It should be noted that this portion of investment income belongs to book unrealized gains and did not bring actual cash inflows.
Stock price fluctuations of the held targets will directly affect the profit performance in subsequent quarters, and it does not mean that the profit turning point of the silicon wafer manufacturing core business has arrived.
Observed from the non-recurring net profit attributable to shareholders perspective, Xi'an Eswin's core business is gradually reducing losses but still has not achieved profitability.
1.3 Gross margin: repaired to 6.45% in the third quarter, but the gap with overseas giants remains large.
In the first three quarters of 2026, Xi'an Eswin's comprehensive gross margin was 5.13%, up 1.11 percentage points year-on-year.
Among this, the third-quarter comprehensive gross margin was 6.45%, up 0.81 percentage points from 5.64% in the second quarter.
From the perspective of product structure, in the third quarter, Xi'an Eswin's prime wafer (including high-end test wafer) sales accounted for 84.02%, up 5.43 percentage points year-on-year.
Among this, epitaxial wafers with the highest average unit price accounted for 30.84% of sales, up 10.97 percentage points year-on-year.
By comparison, in the first half of 2026, epitaxial wafers accounted for 30.72% of sales.
In the third quarter, the proportion of epitaxial wafer sales increased by only 0.12 percentage points from the first half, and product structure upgrading was concentrated in the first half.
At the interim report results briefing, Xi'an Eswin stated that the company's continuous gross margin improvement was jointly affected by multiple factors including product structure improvement, product prices, utilization rate and depreciation level.
At present, the company's product structure continues to improve, and shipments of high value-added products continue to rise.
Among them, prime wafers plus high-end test wafers accounted for about 80% of revenue, and epitaxial wafers within prime wafers accounted for more than 20% of revenue, growing more than 50% year-on-year.
According to relevant information publicly disclosed by leading global silicon wafer manufacturers, the company's gross margin still has considerable room for improvement.
1.4 Depreciation: advancing third factory construction, continued increase in fixed asset transfers is the core medium-term pressure.
In the first half of 2026, Xi'an Eswin's fixed asset depreciation was 624 million yuan, accounting for 39.27% of operating revenue over the same period.
Depreciation is the most core rigid component on the company's cost side.
As of the end of the third quarter, Xi'an Eswin's fixed assets were 11.357 billion yuan, up 11.19% from 10.213 billion yuan at the beginning of the year; construction in progress was 1.264 billion yuan, down 33.53% from 1.902 billion yuan at the beginning of the year; in the first three quarters, cash paid for the purchase and construction of fixed assets, intangible assets and other long-term assets was 2.082 billion yuan, up 24.09% year-on-year.
Second factory equipment continued to be transferred to fixed assets, and the absolute amount of depreciation will continue to rise with capacity release.
In a September institutional survey, Xi'an Eswin stated that in the first half of 2026, the company's first and second factory capacity utilization rates continued to remain high.
Due to factors such as capacity continuing to ramp up, depreciation and amortization not yet fully diluted, and continued high-intensity R&D investment, the company had not yet achieved profitability in the first half, but losses narrowed by about 15%.
According to the company's strategic plan, by the end of 2026 the second factory will achieve full production, at which point the company will have 1.2 million wafers per month of capacity.
At present, the company is advancing the construction of the Wuhan third factory, and it is expected that the first phase of capacity will be put into production in June 2027.
The transfer of production lines to fixed assets will be completed gradually according to capacity ramp-up under accounting standards, and future depreciation growth is expected to be lower than the company's revenue growth.
The depreciation brought by the early-stage transfer of the new factory to fixed assets will be fully covered by revenue from mass production lines.
The company expects gross margin to continue growing in 2027 and net profit to turn positive.
It should be noted that the above guidance is based on three major premises: long-term order price increases landing, yield continuing to ramp up, and capacity utilization remaining high.
If the downstream memory cycle declines, utilization falls, depreciation pressure will be amplified, and there is a risk that the profit timing may be delayed.
Business Tracking: Capacity Continues to Break Through, Customer Certification Pace Slows Marginally, HBM and High-End CIS Epitaxy Form the Second Curve
2.1 Capacity: capacity reaches 1.2 million wafers per month by the end of 2026, with 2027 increments promising.
The third-quarter report shows that in the third quarter of 2026, Xi'an Eswin's monthly shipments exceeded 1.1 million wafers, operating at full utilization.
According to interim report guidance, Xi'an Eswin expects that after the second factory reaches full production in December 2026, total capacity will reach 1.2 million wafers per month, potentially ranking first in China and top five globally.
Xi'an Eswin expects the third factory to achieve the first batch of equipment move-in ahead of schedule in October 2026, realize first-phase capacity production in the first half of 2027, and achieve full production before 2030.
According to the third-quarter report, Xi'an Eswin is currently comprehensively advancing the construction and production of the third factory in accordance with strategic planning.
After the third factory reaches full production, the company's total capacity will reach 1.8 million to 2 million wafers per month.
In other words, Xi'an Eswin's 2026 shipment growth comes from capacity ramp-up at existing factories; the 2027 increment will mainly come from the remaining capacity ramp-up of the second factory combined with the first-phase capacity of the third factory.
2.2 Customers: 210 cumulative certified customers, prime wafer certification pace slows marginally.
As of the end of the third quarter of 2026, Xi'an Eswin had 210 cumulative certified customers, with 21 new additions in the third quarter, flat with the first half; a total of 147 prime wafer models had passed certification, with 5 new additions in the third quarter, slowing from 21 in the first half.
The slowdown in prime wafer certification progress in the third quarter may stem from the remaining categories being concentrated in advanced processes with increased certification difficulty, or it may stem from cyclical fluctuations in customer onboarding.
The company did not explain this in the third-quarter report, making it a key focus for the next tracking period.
In terms of customer structure, domestically, Xi'an Eswin is the world's first or second supplier of 12-inch silicon wafers to mainstream memory chip manufacturers, and the leading domestic supplier of 12-inch silicon wafers to mainstream logic chip manufacturers.
Overseas, Xi'an Eswin has supplied in batches to customers such as TSMC, Samsung Electronics, SK Hynix, Micron Technology, Kioxia and GlobalFoundries, but most are still mainly test wafers, and large-scale introduction of prime wafers by leading overseas customers has not yet been achieved.
In terms of exports, the interim report disclosed that Xi'an Eswin's overseas revenue accounted for about 22.03%.
At the same time, the company's export products are included in the export tax rebate restriction list under the announcement on adjusting the export tax rebate policy for photovoltaic and other products, placing certain pressure on overseas business profits.
2.3 Product technology: HBM supporting silicon wafers under joint R&D, N-type heavily doped wafers being sampled, high-end CIS epitaxial wafers continue to ramp.
Polished wafers: P-type lightly doped memory polished wafers are the main shipment driver, benefiting from AI-driven HBM and advanced DRAM demand; HBM supporting silicon wafers are in the joint R&D stage and have not yet achieved batch supply.
Epitaxial wafers: P-type lightly doped epitaxial wafers are the company's second-largest prime wafer product by shipment volume; P-type heavily doped epitaxial wafers are used in high-end CIS and have been continuously and stably supplied to mainstream domestic wafer foundries; N-type heavily doped epitaxial wafers are in the sampling stage and have not yet been mass-produced.
Based on the strict edge morphology, particle and metal impurity indicators of major overseas customers, Xi'an Eswin's products may still require continuous iterative upgrading, and large-scale introduction of overseas prime wafers is a core catalyst for the company's valuation upside.
Industry Assessment: AI Drives Strong Growth in 12-Inch Silicon Wafer Demand, but Concentrated Domestic Capacity Release and Long-Term Order Mechanisms Jointly Determine the Price Cycle
3.1 Demand side: AI drives an explosion in memory and logic chips.
Currently, the global semiconductor industry is in an AI-driven structural growth cycle.
In 2026, driven by AI computing power, high bandwidth memory (HBM), and global data center construction demand, orders for AI chips, advanced logic chips and memory chips continue to increase.
According to WSTS's forecast at the beginning of the year, the global semiconductor market size in 2026 will reach 1.66 trillion US dollars, up 108% year-on-year.
Among this, memory chips and logic chips will account for about 80% of the chip market size.
The global market size of memory chips will grow 302% year-on-year, and the global market size of logic chips will grow 42% year-on-year.
As AI computing infrastructure construction drives an explosion in 12-inch silicon wafer demand, the industry has entered an upward cycle of supply shortage.
3.2 Supply landscape: overseas majors control expansion, domestic collective expansion brings medium-term involution risk.
The global 12-inch silicon wafer market has long been dominated by international leaders such as Japan's Shin-Etsu Chemical, SUMCO and GlobalWafers.
In recent years, overseas majors have actively controlled the pace of expansion, tilted resources toward high value-added advanced processes, and supply increments for mature-process silicon wafers have been limited, with orders beginning to shift to China.
Domestic peers such as National Silicon Industry Group Co.,Ltd. (ASX: 688126), Hangzhou Lion Microelectronics Co.,Ltd. (ASX: 605358), and Zhongxin Jingyuan (NQ: 874810) are simultaneously expanding on a large scale, and 2027-2028 is the window for concentrated release of domestic 12-inch silicon wafer capacity.
How long this silicon wafer price increase cycle can last depends on whether downstream demand growth can absorb new supply.
If supply exceeds demand, mature-process silicon wafers may once again fall into price competition.
3.3 Long-term order mechanism: price increase benefits deferred to 2027 for realization.
The semiconductor silicon wafer industry generally uses a long-term order model of locking volume and price, signed once a year.
Orders delivered by Xi'an Eswin in the first three quarters of 2026 were basically determined at the end of 2025, locking in capacity and shipment prices, so the company's performance in the first three quarters was limited by the aforementioned demand and price increase factors.
In addition, due to the continued expansion of the second factory, manufacturing costs such as depreciation and amortization have not yet been fully diluted, so the price increase benefits have not yet been fully reflected in the first three quarters.
In a September institutional survey, Xi'an Eswin stated that due to current strong market demand, the company continues to negotiate price increases with customers for different products, and the magnitude of this round of price increases is being negotiated within a certain range with customers based on specific conditions of different products.
Newly supplied products in the first half of 2026 have already achieved price increases, and most price-increase orders will be signed in the fourth quarter of this year, locking in 2027 volume and prices.
Therefore, the financial performance brought by price increases will gradually appear.
Risk Factors
4.1 Profit disturbance risk.
The company holds financial assets formed by strategic placement, whose fair value changes with secondary market stock prices.
This portion of income belongs to non-recurring gains and losses, does not generate operating cash flow, and is likely to cause large fluctuations in net profit attributable to shareholders, interfering with apparent performance.
4.2 Industry cycle downturn risk.
If downstream terminal demand such as AI and memory recovers less than expected, and wafer fabs continue to destock and cut capital expenditure plans, silicon wafer order demand will weaken, product prices will fall, and production line utilization will decline.
The company operates under a heavy asset model, and depreciation is a rigid cost.
A decline in utilization will further amplify unit product depreciation pressure and squeeze gross margin space.
4.3 Risk of customer certification and introduction falling short of expectations.
The prime wafer certification process for leading overseas customers in semiconductor silicon wafers is stringent and the verification cycle is long.
If key technical indicators such as product yield, particle level and edge morphology continue to fail to meet customer specification requirements, it may delay the pace of overseas customer volume ramp-up and constrain the company's medium- to long-term revenue growth and the pace of domestic substitution.
4.4 Capital expenditure and financial risk.
The Wuhan third factory project has a large investment scale, and subsequent continuous equipment procurement and transfer of construction in progress to fixed assets will push up depreciation scale; supporting financing for the project will increase interest expenses, and rigid financial costs will rise, continuously suppressing profitability.
If project production and ramp-up progress is slower than planned, cost-side pressure will become more prominent.
4.5 Risk of intensifying industry supply competition.
Multiple domestic silicon wafer manufacturers are simultaneously advancing capacity expansion, and supply of mature-process 12-inch silicon wafers continues to be released.
During a period of weak demand, oversupply may intensify industry price competition and compress overall industry gross margin.
4.6 Supply chain and geopolitical risk.
Core equipment, high-purity polysilicon, specialty chemicals and other key materials for semiconductor silicon wafer manufacturing are highly dependent on foreign sources.
Geopolitical conflicts and adjustments to overseas export control policies may cause delays in equipment and consumables delivery or higher procurement costs.
At the same time, changes in overseas export tax rebates and trade rules will also bring uncertainty to the company's overseas business profitability.
Valuation Analysis: 414x PE Implies High Execution Expectations, 2027 Is the Key Verification Window
Xi'an Eswin is a typical 12-inch silicon wafer enterprise characterized by "heavy assets, high depreciation, and ramping at the bottom of the cycle."
As of the close on October 22, 2026, its total market value was about 83.6 billion yuan, with a dynamic PE of 414x.
It should be noted that Xi'an Eswin's net profit attributable to shareholders in the first three quarters turned profitable mainly due to gains from fair value changes of strategic placement financial assets, which are non-recurring unrealized gains, do not form operating cash flow, and are not sustainable in apparent performance; the non-recurring net profit attributable to shareholders in the first three quarters was -473 million yuan, reflecting that the core business has not yet achieved profitability.
The current valuation pricing of Xi'an Eswin is not based on current core business profitability, but rather on the capital market pricing in advance the company's long-term expectations such as capacity ramp-up, yield improvement, downstream cycle recovery and domestic substitution volume ramp-up.
The valuation is highly sensitive to the degree of fundamental execution.
Optimistic scenario: in 2027, the company's long-term silicon wafer price increase plan lands smoothly, leading overseas customers complete prime wafer certification and achieve batch supply, production line yield rises steadily, product gross margin continues to repair, the company achieves its non-recurring net profit attributable to shareholders turning positive target as scheduled, long-term profit assumptions are verified, and the valuation has a basis for further improvement.
Neutral scenario: silicon wafer price increases are only partially realized, the pace of prime wafer introduction by leading overseas customers is slower than expected, revenue growth mainly relies on demand from existing domestic customers; the company's non-recurring net profit attributable to shareholders loss continues to narrow, but the timing of core business profitability is delayed.
Under this scenario, the market will lower long-term profit expectations, and the valuation will maintain a relatively cautious pricing level.
Pessimistic scenario: downstream memory and AI chip demand recovery falls short of expectations, wafer fabs continue to destock and cut capital expenditure, silicon wafer demand weakens and production line utilization declines; combined with the concentrated release of new capacity from domestic peers, industry price competition intensifies.
Under the heavy asset model, a decline in utilization will push up unit depreciation costs, further suppress gross margin, lengthen the core business loss cycle, and the valuation faces correction pressure.
Investors are advised to focus on Xi'an Eswin's single-quarter gross margin, production line utilization and yield improvement pace, pay attention to the landing of 2027 silicon wafer long-term order price increases, overseas leading customer prime wafer certification and batch supply progress, and continuously monitor variables such as second factory ramp-up, Wuhan base capital expenditure and fixed asset transfer progress, downstream memory and AI demand changes, industry supply competition and supply chain geopolitics, to verify whether the core business non-recurring profit target can be realized as scheduled.
Comments