Gaoce Shares (688556.SH): Tungsten Wire Acceleration and Robotics Diversification Pave the Way for Long-Term Recovery

Date: September 02, 2025
Ticker: 688556.SH
Rating: Recommend (Maintained)
Current Price: CNY 10.66
Target Valuation Context: 2026E PE 55x / 2027E PE 32x

Executive Summary

Gaoce Shares (688556.SH), a leading integrated provider of photovoltaic (PV) cutting equipment, consumables, and slicing services, released its semi-annual report for the first half of 2025 (25H1). The reporting period was characterized by significant headwinds in the broader PV sector, resulting in a contraction of top-line revenue and a transition to net losses. Specifically, the company reported revenues of CNY 1.451 billion in 25H1, a year-over-year (YoY) decline of 45.16%, and a net loss attributable to shareholders of CNY 89 million. However, a granular analysis of the second quarter (25Q2) reveals signs of stabilization: revenue reached CNY 766 million (down 37.57% YoY but up 11.63% quarter-over-quarter), and the net loss narrowed significantly to CNY 14 million, indicating that the worst of the operational downturn may be passing.

Despite the challenging macro environment in the solar industry, Gaoce Shares demonstrated resilience through two critical strategic pivots. First, the company successfully accelerated the adoption of its high-value Tungsten Wire Diamond Wire, which now constitutes over 77% of its total diamond wire sales volume. This product mix shift is driving a gradual repair in profitability margins despite intense price competition. Second, and perhaps more importantly for long-term valuation re-rating, Gaoce has actively diversified into the Humanoid Robotics sector. Leveraging its core competencies in precision grinding and material science, the company has developed planetary roller screw grinding equipment and composite metal tendons for robotic dexterous hands, securing initial small-batch orders.

We maintain our "Recommend" rating on Gaoce Shares. While the near-term financials reflect the cyclical trough of the PV industry, the company’s technological moat in thin-wire cutting and its successful penetration into the high-growth robotics supply chain provide a compelling dual-engine growth narrative. We project a return to profitability in 2026, with estimated net profits of CNY 157 million in 2026E and CNY 269 million in 2027E. The current valuation, trading at approximately 55x forward PE for 2026, reflects the market’s anticipation of this recovery and the optionality provided by the robotics business. Investors should view the current weakness as a cyclical bottoming opportunity, underpinned by structural improvements in product mix and new market expansion.

Key Takeaways

1. Financial Performance: Navigating the Cyclical Trough

The first half of 2025 presented a difficult operating environment for Gaoce Shares, mirroring the broader distress in the global photovoltaic supply chain. The company’s financial results reflect both volume pressures and pricing compression inherent to the industry’s consolidation phase.

Top-Line Contraction and Sequential Stabilization
In 25H1, total revenue stood at CNY 1.451 billion, representing a substantial 45.16% YoY decline. This contraction was driven by reduced capital expenditure from downstream PV manufacturers and intense competition in the slicing service sector. However, the sequential trend in the second quarter offers a more nuanced picture. 25Q2 revenue of CNY 766 million marked an 11.63% increase from 25Q1, suggesting that demand destruction is stabilizing and order books are beginning to normalize.

Profitability Under Pressure but Improving
The company reported a net loss attributable to shareholders of CNY 89 million in 25H1, compared to a profit in the corresponding period of the previous year. The adjusted net profit (excluding non-recurring items) was a loss of CNY 122 million. Crucially, the loss magnitude narrowed considerably in 25Q2, with a net loss of only CNY 14 million and an adjusted loss of CNY 41 million. This sequential improvement in the bottom line is a key indicator that cost-control measures and product mix optimization are starting to offset revenue declines.

Source: Company Reports, Minsheng Securities Institute

The transition from profit to loss was anticipated given the industry-wide price wars in silicon wafer processing and diamond wire manufacturing. However, the narrowing loss in Q2 suggests that the company has effectively managed its fixed costs and is benefiting from the higher margin contribution of its tungsten wire products.

2. Core Business Driver: Tungsten Wire Diamond Wire Acceleration

The most significant operational highlight in 25H1 was the rapid scaling of Gaoce’s Tungsten Wire Diamond Wire business. As the PV industry pushes for thinner wafers to reduce silicon consumption and lower costs, tungsten wire has emerged as the superior alternative to traditional carbon steel wire due to its higher tensile strength and ability to support finer diameters without breaking.

Market Share Gain and Product Mix Shift
Gaoce has leveraged its early-mover advantage in cold-drawn tungsten mother wire capacity to capture a dominant share of this transitioning market. In 25H1, the company sold approximately 30.3 million kilometers of diamond wire (including internal use for its slicing services). Of this total, 23.42 million kilometers were tungsten wire, representing a staggering 77.29% of total volume. This high penetration rate underscores Gaoce’s technological leadership and the market’s acceptance of its premium product.

The shift toward tungsten wire is not merely a volume story but a critical profitability driver. Tungsten wire commands a higher price point and, as production scales and yields improve, offers better gross margins than commoditized steel wire. The "rapid release" of cold-drawn tungsten mother wire capacity has allowed Gaoce to meet surging demand while maintaining supply chain control. This vertical integration—from mother wire production to finished diamond wire—provides a cost advantage that competitors lacking upstream capacity struggle to match.

Revenue Contribution from Cutting Consumables
The PV cutting consumables segment generated CNY 340 million in revenue during 25H1. While this figure reflects the overall market downturn, the underlying quality of this revenue has improved due to the higher value-added nature of tungsten products. The company’s ability to maintain sales volume growth in a shrinking market demonstrates the stickiness of its customer relationships and the technical necessity of its products for advanced wafer manufacturing.

3. Service Segment Resilience: Slicing代工 (OEM) Penetration Deepens

Gaoce’s unique business model integrates equipment manufacturing, consumable sales, and slicing services (OEM). This "Equipment + Process" closed-loop technology advantage allows the company to offer customers higher yield rates, lower non-silicon costs, and superior wafer quality.

Increasing Penetration Rate
In 25H1, the penetration rate of Gaoce’s slicing services reached 8.23%, an increase of 3.25 percentage points compared to 2024. This gain in market share is particularly impressive given the competitive landscape. Downstream wafer manufacturers are increasingly outsourcing slicing to specialized providers like Gaoce to avoid the capital intensity and technological risk of maintaining in-house cutting capabilities, especially as wafer thicknesses drop below 100 microns.

Revenue Stability in Services
The silicon wafer and cutting processing service segment generated CNY 711 million in revenue in 25H1. This segment remains the largest revenue contributor, providing a stable cash flow base even as equipment sales fluctuate. The steady increase in orders and penetration rate indicates that Gaoce’s service model is becoming a standard industry practice rather than a niche offering. The technical barrier to entry for high-yield thin-wafer slicing protects this business from low-cost competitors, allowing Gaoce to maintain pricing power relative to pure-play service providers.

4. Strategic Diversification: Entry into the Humanoid Robotics Sector

Perhaps the most transformative development for Gaoce Shares is its strategic entry into the humanoid robotics supply chain. This move is designed to open a new growth ceiling beyond the cyclical constraints of the PV industry. The company is leveraging its core competencies in high-precision grinding and advanced material research (specifically tungsten and steel alloys) to address critical bottlenecks in robot manufacturing.

Planetary Roller Screw Grinding Equipment
One of the most expensive and technically challenging components in humanoid robots is the planetary roller screw, which converts rotary motion into linear motion with high load capacity and precision. Gaoce has utilized its extensive R&D accumulation in high-precision grinding equipment (originally developed for PV crystal grinding and wafer processing) to develop specialized grinding machines for planetary roller screws. The report confirms that the R&D of this equipment is progressing smoothly. Success in this area positions Gaoce not just as a component supplier, but as a provider of essential manufacturing equipment for the robotics industry, a high-margin niche with significant barriers to entry.

Composite Metal Tendons for Dexterous Hands
Leveraging its expertise in tungsten and steel wire materials, Gaoce has successfully developed composite metal tendons suitable for the dexterous hands and other joints of humanoid robots. These tendons require high tensile strength, flexibility, and durability—properties that align perfectly with Gaoce’s material science capabilities in diamond wire core materials.
* Progress: The product has entered the trial phase with multiple robotics companies.
* Commercialization: The company has already secured small-batch orders, marking the transition from R&D to commercial validation.
* Significance: This represents a direct monetization of existing R&D assets into a high-growth adjacent market.

Customized Reducer Products
Additionally, Gaoce is actively cooperating with clients to advance the custom R&D of reducers for humanoid robots. While details are less specific than the tendon and grinding equipment initiatives, this engagement highlights the company’s deepening integration into the robotics ecosystem.

Strategic Implication
The robotics segment is currently small in terms of revenue contribution but holds immense strategic value. It diversifies Gaoce’s revenue streams, reduces dependence on the volatile PV cycle, and associates the company with a high-valuation thematic sector. As the humanoid robotics industry moves from prototype to mass production (expected in the late 2020s), Gaoce’s early entry could yield substantial long-term returns.

5. Financial Forecast and Valuation Analysis

Based on the 25H1 performance and the strategic developments outlined above, we have updated our financial projections for Gaoce Shares for the years 2025 through 2027.

Revenue Projections
We forecast total revenues of CNY 2.896 billion in 2025E, CNY 3.457 billion in 2026E, and CNY 4.053 billion in 2027E.
* 2025E: The projected 35.3% decline in revenue reflects the continued impact of the PV industry downturn in the first half of the year and conservative assumptions for the second half.
* 2026E-2027E: We anticipate a robust recovery with growth rates of 19.3% and 17.2%, respectively. This recovery is driven by the stabilization of PV demand, the continued substitution of steel wire with higher-value tungsten wire, and the incremental contribution from robotics-related businesses.

Profitability Trajectory
The path to profitability is expected to follow a J-curve trajectory:
* 2025E: We project a net loss of CNY 34 million. This reflects the full-year impact of 25H1 losses and ongoing investment in new capacities.
* 2026E: A turnaround to a net profit of CNY 157 million is expected. This inflection point is driven by operating leverage, improved gross margins from the tungsten wire mix, and the scaling of high-margin robotics components.
* 2027E: Net profit is forecast to grow by 71.1% to CNY 269 million, reflecting mature operations in both PV and robotics segments.

Source: Wind, Minsheng Securities Institute Estimates. Note: PE based on closing price of CNY 10.66 on Sep 2, 2025.

Valuation Perspective
At the current price of CNY 10.66, the stock trades at a forward PE of 55x for 2026E and 32x for 2027E. While these multiples appear elevated compared to traditional manufacturing peers, they are justified by:
1. Turnaround Potential: The market is pricing in the earnings inflection from 2025 to 2026.
2. Technological Moat: Gaoce’s leadership in tungsten wire and slicing technology provides a defensive buffer.
3. Robotics Optionality: The valuation includes a premium for the potential upside from the humanoid robotics sector, which is currently valued at much higher multiples in the market.

The Price-to-Book (PB) ratio remains stable around 2.2x-2.4x, indicating that the market values the company’s asset base and franchise value reasonably, without excessive speculation. The EV/EBITDA multiple compresses from 19.46x in 2025E to 9.58x in 2027E, suggesting that as earnings recover, the stock becomes increasingly attractive on a cash-flow basis.

Risks / Headwinds

While the investment thesis is compelling, investors must consider several significant risks that could impede Gaoce Shares’ recovery and growth trajectory.

1. Downstream Demand Uncertainty in Photovoltaics

The primary risk remains the pace of recovery in the global PV industry.
* Overcapacity: The PV sector is still grappling with significant overcapacity in silicon wafers and modules. If downstream manufacturers continue to cut production or delay capacity expansions, demand for Gaoce’s slicing services and diamond wire will remain suppressed.
* Policy Shifts: Changes in trade policies (e.g., tariffs in the US or Europe) or subsidies in key markets could disrupt global supply chains and reduce overall installation volumes.
* Technology Disruption: While tungsten wire is currently dominant, any unexpected breakthrough in alternative cutting technologies (e.g., laser cutting improvements) could threaten the long-term demand for diamond wire.

2. Intensifying Market Competition

The diamond wire and slicing service markets are becoming increasingly crowded.
* Price Wars: Competitors may engage in aggressive pricing strategies to gain market share, particularly in the steel wire segment, which could spill over into tungsten wire pricing. This would pressure Gaoce’s gross margins and delay profitability recovery.
* New Entrants in Robotics: The humanoid robotics supply chain is attracting significant attention from established industrial automation firms and new startups. Gaoce faces the risk of being outpaced by competitors with deeper expertise in robotics-specific components, potentially limiting its market share in this new sector.

3. Execution Risk in New Business Expansion

The transition into the robotics sector is not without execution challenges.
* R&D Delays: The development of planetary roller screw grinding equipment and customized reducers is complex. Any delays in achieving technical specifications or mass-production readiness could push back revenue recognition.
* Customer Adoption: Securing small-batch orders is a positive step, but converting these into large-scale, recurring contracts requires rigorous validation by robotics OEMs. Failure to meet quality or delivery standards could result in loss of key clients.
* Capital Allocation: Expanding into new sectors requires sustained R&D and capital expenditure. If the PV business does not generate sufficient cash flow, Gaoce may face liquidity constraints or need to raise capital, potentially diluting shareholder value.

4. Raw Material Price Volatility

Gaoce’s cost structure is sensitive to the prices of key raw materials, particularly tungsten and steel.
* Tungsten Prices: As the company increases its reliance on tungsten wire, fluctuations in tungsten prices can directly impact gross margins. While Gaoce has some upstream integration, it may not be fully hedged against sharp commodity price spikes.
* Supply Chain Disruptions: Geopolitical tensions or supply chain bottlenecks could affect the availability of high-quality tungsten mother wire or other critical inputs.

5. Financial and Operational Leverage

• Debt Levels: The company’s debt-to-asset ratio is projected to remain around 54-55% in the coming years. In a prolonged downturn, high leverage could constrain financial flexibility and increase interest expenses, further pressuring net income.
• Receivables Management: The accounts receivable turnover days are relatively high (projected at 280 days in 2025E). In a stressed industry environment, there is a risk of bad debts or delayed payments from downstream customers, impacting cash flow.

Rating / Sector Outlook

Sector Outlook: Photovoltaics & Advanced Manufacturing

Photovoltaics: Bottoming Out
The global PV sector is currently in a phase of painful consolidation. After years of rapid expansion, the industry is working through excess inventory and capacity. However, the long-term fundamentals remain intact due to the global energy transition. We expect the sector to reach a supply-demand balance by late 2025 or early 2026, leading to a gradual recovery in equipment and consumable demand. Companies with technological advantages (like tungsten wire) and integrated service models (like Gaoce) are best positioned to survive the downturn and capture market share.

Humanoid Robotics: Early Stage High Growth
The humanoid robotics sector is transitioning from laboratory prototypes to early commercialization. Driven by advancements in AI and actuator technology, demand for precision components (screws, reducers, sensors) is expected to explode in the next 3-5 years. This sector offers high growth potential and higher valuation multiples, making it an attractive diversification target for industrial manufacturers.

Investment Rating: Recommend (Maintained)

We maintain our "Recommend" rating for Gaoce Shares. This rating reflects our confidence in the company’s ability to navigate the current PV downturn and its successful strategic pivot into high-growth adjacent markets.

• Short-Term (6-12 months): The stock may experience volatility as the market digests the 2025 losses and monitors the pace of PV recovery. However, the narrowing losses in 25Q2 provide a catalyst for sentiment improvement.
• Medium-to-Long Term (1-3 years): The combination of tungsten wire dominance, slicing service penetration, and robotics diversification creates a robust growth profile. The expected return to profitability in 2026 and strong earnings growth in 2027 support a higher valuation multiple.

Key Catalysts for Re-rating:
1. Quarterly Profitability: Confirmation of quarterly net profit positivity in 2H 2025 or 1Q 2026.
2. Robotics Orders: Announcement of significant, large-scale contracts for robotic tendons or grinding equipment.
3. Tungsten Wire Margins: Evidence of sustained gross margin expansion in the consumables segment.
4. Industry Consolidation: M&A activity or capacity exits in the PV sector that signal the end of the price war.

Investment View

Core Investment Logic

Gaoce Shares represents a classic "turnaround plus optionality" investment case. The core logic rests on three pillars:

1. Technological Leadership in a Transitioning Market: The shift from steel to tungsten wire in PV cutting is a secular trend driven by the physics of thinner wafers. Gaoce is not just a participant but a leader in this transition, with >77% of its wire sales now in tungsten. This product mix upgrade provides a structural margin advantage that will persist even in a competitive market. The company’s vertical integration in tungsten mother wire further cements this moat.

2. Resilient Business Model via Vertical Integration: Unlike pure equipment sellers or pure service providers, Gaoce’s integrated model ("Equipment + Consumables + Services") creates sticky customer relationships. The slicing service business acts as a showcase for its equipment and consumables, driving cross-selling opportunities. The increasing penetration rate (8.23%) proves that customers value this integrated solution, providing a stable revenue base that cushions against equipment cycle volatility.

3. High-Conviction Diversification into Robotics: The entry into humanoid robotics is not a superficial marketing exercise but a logical extension of Gaoce’s core competencies. The development of planetary roller screw grinding equipment and composite metal tendons addresses real, high-value bottlenecks in robot manufacturing. The attainment of small-batch orders validates the technology and opens a massive new total addressable market (TAM). This diversification reduces the company’s beta to the PV cycle and adds a high-growth, high-multiple component to its valuation.

Strategic Implications for Institutional Investors

For institutional investors, Gaoce Shares offers a way to gain exposure to two megatrends: the green energy transition (via PV) and the automation revolution (via Robotics).

• Timing the Cycle: The current financial distress is largely priced in. The narrowing losses in 25Q2 suggest that the bottom is near. Investors looking to position for the 2026 recovery in the PV sector should consider accumulating positions during periods of weakness.
• Valuation Safety Margin: With a PB ratio of ~2.3x and a clear path to profitability, the downside risk is limited by the company’s tangible asset base and established market position. The upside, however, is amplified by the robotics optionality.
• Monitoring Metrics: Investors should closely monitor the gross margin trends in the consumables segment (to verify the tungsten wire premium) and the revenue contribution from robotics (to track the success of diversification). Additionally, accounts receivable turnover is a key health indicator given the stressed financial condition of some downstream PV clients.

Conclusion

Gaoce Shares is navigating a challenging period with strategic foresight and operational discipline. While the 25H1 financial results reflect the broader industry malaise, the underlying operational metrics—tungsten wire adoption, slicing service penetration, and robotics progress—point to a stronger, more diversified future. The company is effectively using the downturn to solidify its technological lead and expand into new frontiers.

We believe the market is underestimating the speed of the profitability recovery and the long-term value of the robotics business. As the PV cycle turns and robotics commercialization accelerates, Gaoce Shares is well-positioned to deliver superior returns. We recommend investors maintain or initiate positions, viewing the current valuation as an attractive entry point for long-term growth.

Appendix: Detailed Financial Analysis & Data

1. Income Statement Analysis (Forecast)

The following table details the projected income statement, highlighting the recovery in operating profit (EBIT) and net income.

Analysis: The gross margin is projected to expand from 18.38% in 2025E to 23.72% in 2027E. This expansion is primarily driven by the higher margins of tungsten wire and the scaling of high-value robotics components. Operating expenses are managed tightly, with R&D remaining robust to support innovation. The significant reduction in asset impairment losses (from -110 Mn in 2024A to -14 Mn in 2025E) also aids the recovery.

2. Balance Sheet Health

Analysis: The balance sheet remains stable. Cash reserves are projected to increase to CNY 796 million by 2027, providing liquidity for R&D and potential capex. Accounts receivable remain high, reflecting the industry norm, but are managed within acceptable limits. The debt-to-asset ratio increases slightly but remains manageable at ~55%.

3. Cash Flow Dynamics

Analysis: The turnaround in operating cash flow from negative CNY 1,261 million in 2024A to positive CNY 538 million in 2025E is a critical positive signal. This improvement is driven by better working capital management and the cessation of heavy inventory buildup. Capital expenditures (Investing Cash Flow) remain significant (CNY 500-600 Mn annually) as the company invests in tungsten wire capacity and robotics R&D equipment, underscoring its commitment to long-term growth.

4. Key Financial Ratios & Efficiency

Analysis: ROE and ROA turn positive in 2026, aligning with the profit recovery. Liquidity ratios (Current and Quick) remain healthy above 1.5x, indicating no immediate solvency risk. The high receivables turnover days (220-280 days) are a concern and reflect the bargaining power of downstream PV clients; however, the projected improvement to 220 days by 2027 suggests gradual normalization.

Final Remarks

Gaoce Shares stands at a pivotal juncture. The company has successfully weathered the initial shock of the PV industry’s downturn by doubling down on its technological strengths in tungsten wire and slicing services. Simultaneously, it has planted the seeds for future growth in the humanoid robotics sector. While the near-term financials are weak, the trajectory is clearly upward. For institutional investors with a medium-to-long-term horizon, Gaoce offers a compelling risk-reward profile, combining cyclical recovery potential with structural growth optionality. We reaffirm our Recommend rating, urging investors to look beyond the transient losses and focus on the strengthening fundamentals and strategic diversification.