Hesai (2525 HK, HK$15.07, HK$15.7bn) Resilient LiDAR Profitability Despite SGI Investment and Soft Auto Demand

Hesai is a leading global LiDAR supplier serving ADAS, Robotaxi and robotics applications. It reported a 34% YoY revenue gain in 3Q26 to RMB1.07bn, despite missing shipment expectations. Core LiDAR operating profit rose 88% YoY to RMB145m, but it was largely eroded by a RMB83m operating loss from Strategic Growth Initiatives (SGI), leaving net profit at just RMB81m. The Mgt is giving a weaker-than-expected 4Q26 guidance, implying only 3–8% QoQ revenue growth, due to sluggish domestic auto demand. Looking into 2027, premium product launches, overseas expansion, stabilizing ADAS pricing and narrowing SGI losses will be key earnings drivers.

LiDAR Shipments Missed Expectations: LiDAR products revenue reached RMB974m (+23% YoY/+20% QoQ) and service stood at RMB17m. Total shipments rose 65.3% YoY and 16.1% QoQ to 729.7k units, below consensus of 823k. ADAS shipments reached 638k units (+67.6% YoY/+31.3% QoQ), below consensus of 676k units, mainly due to the weak domestic auto demand and automakers cutting sales targets. Competition also intensified as major customers introduced secondary suppliers.  For instance, RoboSense (2498.HK, HK$16.47, HK$7.75bn) has entered Xiaomi’s supply chain.  In general, aggressive pricing in lower-end products and growing penetration of Huawei-related LiDAR solutions added pressure to the segment. As a result, Hesai’s share of China’s long-range ADAS LiDAR market declined from a peak 55% in March to 43% in September, though it remained the market leader.

Robotics LiDAR shipments reached 91.6k units (+51.1% YoY/-35.6% QoQ), below the consensus of 153k units, the QoQ slowdown was mainly resulting from the business adjustment at a single lawnmower customer, pressuring lower-priced JT products. Hesai had won an exclusive 10mn unit JT nomination within the Dreame ecosystem, but Dreame recently reorganized its lawnmower operations, underscoring customer-concentration and delivery risks tied to large nominations.

Meanwhile, premium products (Pandar, OT, QT and XT) are seeing strong demand from Robotaxi and humanoid robotics which drove revenue growth by over 60% YoY during 9M26. The Mgt indicated that non-ADAS businesses contributed over 50% of total revenue, which implies an estimated ASPs of RMB5,300 for robotics LiDAR versus only RMB770 for ADAS LiDAR, a nearly sevenfold difference. Thus, a richer premium product mix lifted blended ASP by around 3% QoQ to RMB1,334, ending consecutive quarterly declines.

As ADAS pricing competition becomes more rational, the Mgt is now focusing on product quality and profitability, expecting ATX pricing and margins to stabilize in 2027, with further moderation in overall ASP declines. Meanwhile, the premium ET series has secured orders from five global automakers covering over 1m units in project volume. Together with the FT blind-spot LiDAR and overseas project ramp-ups, these products should support higher LiDAR content per vehicle and a stronger revenue mix.

SGI Commercialization Accelerates: SGI revenue soared to RMB90.5m (+101.5% QoQ), contributing 8.5% of total revenue, driven by actuator module shipments almost doubling QoQ to 23,405 units. Cumulative shipments exceeded 35k units, with applications expanding from dexterous hands to full-body joint modules. Key customer Sharpa continued its commercial deployment, while the Kosmo spatial intelligence platform made its first revenue contribution in 3Q. Hardware sales, software subscriptions and 3D asset licensing could broaden future revenue streams. However, SGI operating losses widened from RMB64mn in 2Q to RMB83mn, on the back of higher R&D and commercialization spending. The Mgt maintained its FY26 SGI revenue guidance of RMB200–300mn and expects revenue to reach RMB700mn in 2027, with six-figure annual actuator shipments and potential operating breakeven.

SGI Losses Offset Core LiDAR Profitability: Overall GPM reached 41% (-1.1ppts YoY/+0.9ppts QoQ), ahead of consensus at 39.9%, supported by an improved product mix and cost control. OPEX stood at approximately RMB401m (+26.8% YoY), with OPEX ratio at 37.5%, mainly reflecting SGI investment. Core LiDAR operating profit increased 88% YoY to RMB145m (15% OPM), demonstrating resilient profitability. However, SGI’s RMB83m operating loss erased approximately 57% of core LiDAR operating profit, resulting in an overall operating profit of RMB62.6m (-19.1% YoY). Attributable net profit stood at RMB80.8m (-68.5% YoY/+14.4% QoQ), below consensus of RMB132m, largely due to some RMB185mn in one-off gains recorded a year earlier. Excluding these effects, underlying earnings still improved YoY. The Mgt expects FY26 GPM to remain around 40%, with incremental operating spending primarily directed toward SGI.

Strong Liquidity and Balance Sheet: At the end of 3Q26, Hesai held RMB6.98bn in cash and investments, down RMB73.5m QoQ, against RMB915m in borrowings, leaving net cash of around RMB6.06bn. Trade receivables increased 16.6% from end-2025 to RMB1.47bn, alongside RMB164m in related-party receivables (Sharpa Business), while inventories rose 62.3% to RMB1.09bn, indicating higher working capital requirements. Overall, the company maintains a solid financial position, with ample funding for LiDAR R&D and SGI expansion.

Our View: The Mgt guided for 4Q26 revenue of RMB1.1–1.15bn, below consensus of RMB1.39bn, implying only 3–8% QoQ growth and further YoY deceleration, suggesting persistent weakness in domestic auto demand. Nevertheless, we believe Hesai retains competitive advantages in technology, scale and cost efficiency, with a 15% core LiDAR operating margin that is above peer levels. Its 62% market share of the global Robotaxi LiDAR market in 2025 also underscores its leadership in premium applications.
Looking into 2027, easing ADAS pricing pressure and continued cost reductions should moderate ASP declines and support group GPM to be sustained at near 40%. Rising L3 autonomous driving penetration, ET and FT product ramp-ups and overseas projects should improve premium product mix and LiDAR content per vehicle, offsetting competition in lower-end segments. SGI reaching operating breakeven will be a big boost to bottom line. We remain constructive on Hesai’s long-term opportunities in premium automotive and robotics LiDAR; however, near-term performance still depends on domestic auto demand, premium order conversion, and SGI profitability. The counter is trading at 42x FY26E and 22x FY27E P/E. (Research Department)