(Aug 28): CXMT Corp’s first earnings as a public company will test whether its business can live up to a stock market debut that instantly made it China’s most valuable listed company.

Shares of China’s homegrown memory chipmaker have jumped more than 570% since listing and remain within 10% of their peak, making it the most resilient market debut onshore this quarter, data compiled by Bloomberg show. They fell as much as 1.7% on Friday.  

As the world’s fourth-biggest DRAM producer, CXMT has become a symbol of China’s effort to reduce its reliance on foreign technology. Even after the surge, the stock still trades at a significant discount to global peers, Goldman Sachs Group Inc said. Closing that gap may depend on whether CXMT can show its profits are sustainable and its capacity expansion can deliver further growth.

“It’s no longer a question of whether CXMT can generate exceptional profits,” said Wang Xi, chairman of Shenzhen-based investment firm Jiuxing Investment Co. “The quality and durability of those numbers, pace of spending, and tangible progress in high-bandwidth — those factors will drive earnings expectations and set its valuation anchor from here.”

Wang said investors are also turning more selective on memory stocks, looking for fresh evidence that validates the company’s business model and growth expectations.

CXMT has forecast a strong first half, expecting revenue of 110 billion yuan (RM65.9 billion) to 120 billion yuan, at least double its first-quarter sales of 50.8 billion yuan, according to its prospectus. Net profit is seen at 50 billion yuan to 57 billion yuan, compared with 24.8 billion yuan in the three months through March. It’s set to report results on Friday.

That guidance helped fuel the stock’s blockbuster debut late July, when CXMT reached a market value of 3.3 trillion yuan. It went on to surpass Hong Kong-listed Tencent Holdings Ltd in the following days, becoming China’s largest listed company by market capitalisation.

There are signs that even blowout earnings may not be enough. SK Hynix Inc shares fell almost 10% after reporting a sixfold surge in quarterly profit. Samsung Electronics Co also declined after a sharp profit increase. Chinese memory firms including GigaDevice Semiconductor Inc and Shenzhen Techwinsemi Technology Co saw similarly muted or negative reactions to results or preliminary figures.

The reactions this week to Chinese hardware tech earnings have been subdued. Sharetronic Data Technology Co traded lower after reporting earnings that more than quadrupled. Victory Giant Technology Co shares fell more than 7% in Hong Kong following a revenue miss. 

The “violent AI selloff” in July marked a shift in investor psychology, said Yang Tingwu, a fund manager at Fujian Tongheng Investment. Strong earnings may make a company’s valuation look cheaper, he said, but that is rarely a reason to turn bullish on a cyclical stock. “That’s just the market’s way of signaling peak earnings may be approaching.”

CXMT trades at about 10 times estimated 2027 earnings, a “significant discount to global peers”, according to Goldman Sachs. The multiple is based on forecasts for net income to more than double to 361 billion yuan in 2027 from an estimated 161 billion yuan this year.

Capacity will be central to that outlook. CXMT’s “very aggressive” investment plan will be an important factor as investors gauge the global memory supply-demand balance by 2028, Goldman analysts including Allen Chang wrote this week. 

They expect CXMT’s scarcity value, product mix upgrades and role as a beneficiary of supplier diversification to help its earnings outpace the industry, underpinning their Street-high price target of 129 yuan. The shares traded at 58.36 yuan as of mid-day on Friday.

CXMT’s reign at the top of China’s stock market may soon face a new challenger. Yangtze Memory Technologies Co, or YMTC, has joined the IPO pipeline with plans to raise 33 billion yuan on Shanghai’s Star board, more than the 30 billion yuan sought by CXMT.

The Wuhan-based company makes NAND flash memory, the storage technology used in solid-state drives and data centres. Like CXMT, it emerged from China’s state-led drive to reduce dependence on foreign technology and is now the country’s dominant player in the sector. YMTC ranks third globally by sales and output, according to its prospectus, while its net profit and net margin surpassed CXMT’s in the March quarter.

That could make YMTC an even bigger test of investor appetite for China’s memory-chip champions. NAND faces fewer manufacturing barriers, potentially giving YMTC more room to challenge global incumbents.

“Valuations across hardware firms in China are propped up by the idea that self-sufficiency will create a large total addressable market,” said Morningstar Inc analyst Jing Jie Yu. “YMTC will probably start from a stronger competitive position than the rest.”

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