CICC has released a research report maintaining its revenue and earnings forecasts for PHANCY (06682) for fiscal years 2026e and 2027e. The firm also kept its Outperform rating and HK$40 target price unchanged, which corresponds to 1.2x 2027e P/S. The stock currently trades at 0.8x 2027e P/S, implying a 54% upside from current levels.

1H26 Results Align with Expectations

PHANCY reported its 1H26 results with revenue of RMB 3.765 billion, representing a 43.4% year-on-year increase. Net profit attributable to shareholders reached RMB 119 million, while adjusted net profit attributable to shareholders was RMB 150 million, marking a turnaround to profitability. Both revenue and net profit attributable to shareholders landed at the upper end of the previously guided range, consistent with CICC's expectations.

API Business Emerges as Core Growth Driver

In 1H26, the company achieved total revenue of RMB 3.765 billion, up 43.4% year-on-year. Breaking down by segment: 1) API business revenue surged 860.8% year-on-year to RMB 464 million, with its revenue contribution rising to 12.3%. Token call volume grew 620% year-on-year in 1H26. Leveraging core technologies such as HAMi vGPU and ModelHub, the company has built efficient Token production capabilities, with available computing resources expanded to 28,000 PFLOPS. According to the earnings call, management has raised the full-year API revenue guidance to 20x year-on-year growth. 2) AI Platform business revenue reached RMB 3.088 billion, up 30.0% year-on-year. Per company disclosures, the AI Platform segment's order backlog reached RMB 7 billion as of 1H26, with the key highlight being a 400% year-on-year increase in order volume, providing ample room for performance delivery.

Operational Efficiency Improvements

In 1H26, the company's gross margin stood at 32.8%. Selling, administrative, and R&D expense ratios were 0.8%, 2.4%, and 32.1%, respectively, down 6.4, 0.9, and 1.9 percentage points year-on-year. The company recorded net other income of RMB 450 million in 1H26, primarily driven by an increase in the fair value of investment projects. As of the end of 1H26, cash and cash equivalents totaled RMB 1.294 billion, down 35.2% from the end of 2025. To match the capital requirements of business expansion, total borrowings increased from RMB 202 million at the end of 2025 to RMB 1.66 billion. The company currently holds approximately RMB 6.6 billion in credit facilities, providing relatively diversified financing channels.

Key Risks

Risks include slower-than-expected technology iteration, product promotion falling short of expectations, and profit pressure from increased R&D investment.