Gaoce Shares (688556.SH): Photovoltaic Core Business Stabilizes; Robotics Emerges as Second Growth Curve

Date: September 02, 2025
Rating: BUY (Maintained)
Current Price: CNY 11.26
Target Price Implied Upside: Significant long-term value realization driven by earnings recovery and new business scaling.

Executive Summary

Gaoce Shares (688556.SH), a leading provider of photovoltaic (PV) cutting equipment, consumables, and slicing services, has demonstrated significant sequential improvement in its second-quarter (Q2) 2025 performance, signaling a potential inflection point for its core PV business. While the first half of 2025 (1H25) remained challenging due to broader industry headwinds, Q2 results indicate that profitability is bottoming out. The company reported a narrowing loss in Q2, with gross margins rebounding sequentially by over 9 percentage points. This stabilization coincides with a structural optimization in the PV industry, where policy-driven measures against "involution" (excessive internal competition) are beginning to restore pricing power and rationalize supply dynamics.

Beyond the cyclical recovery of its traditional PV operations, Gaoce Shares is strategically diversifying into the high-growth humanoid robotics sector. Leveraging its core competencies in grinding technology and tungsten wire materials, the company has developed planetary roller screw grinding machines and tungsten-based tendon ropes for robotic dexterous hands. With Tesla’s Optimus entering small-batch mass production in 2025, Gaoce is well-positioned to capture early-stage demand in this emerging supply chain.

We maintain our BUY rating on Gaoce Shares. We project net attributable profits to recover to CNY 53 million in 2025, growing to CNY 127 million in 2026 and CNY 241 million in 2027. Although current valuation multiples appear elevated due to the temporary earnings trough, the forward-looking P/E ratios compress significantly to 67x in 2026 and 35x in 2027, reflecting robust earnings growth potential. The investment thesis is underpinned by three pillars: (1) the cyclical recovery and margin expansion in the PV slicing segment; (2) the strengthening of its "Equipment + Consumables + Service" closed-loop competitive moat; and (3) the successful validation and commercialization of robotics-related products, which open a substantial second growth curve.

Key Takeaways

1. Financial Performance: Q2 Losses Narrow Significantly, Signs of Recovery Emerge

The financial results for 1H25 reflect the lingering impact of the downturn in the global photovoltaic industry, but the trajectory in Q2 suggests that the worst may be behind the company.

1H25 Overview:
* Revenue: Total revenue reached CNY 1.451 billion, representing a year-over-year (YoY) decline of 45.16%. This contraction was primarily driven by the overall下行 (downward) trend in the PV industry chain.
* Profitability: The company recorded a net loss attributable to shareholders of CNY 89 million (YoY -132.47%) and a deducted non-recurring net loss of CNY 122 million (YoY -151.26%).
* Cash Flow: Operating cash flow was negative at CNY -330 million, but this represents a sequential improvement of 73.83%, attributed to enhanced receivables management and reduced outflows for raw materials and employee compensation.

Q2 2025 Sequential Improvement:
* Revenue: Q2 single-quarter revenue stood at CNY 766 million, a YoY decline of 37.57% but a sequential quarter-over-quarter (QoQ) increase of 11.63%.
* Net Profit: The net loss for Q2 was CNY 14 million. While still negative, this marks a significant narrowing compared to Q1. The deducted non-recurring net loss was CNY 42 million, also showing sequential improvement.
* Margin Rebound: The most critical indicator of recovery is the gross margin. In Q2, the gross margin reached 16.11%, a sequential increase of 9.22 percentage points (pct) from Q1. Although this is still 2.89 pct lower YoY, the sequential jump indicates that price wars are abating and operational efficiency is improving. The net profit margin for Q2 was -1.88%, improving sequentially by 8.93 pct.

Segment Breakdown (1H25):

Analysis: The Slicing Service segment, which accounts for nearly half of total revenue, suffered from negative gross margins (-6.63%) due to intense competition and low utilization rates. However, its revenue decline was relatively muted (-5.19%) compared to equipment sales, demonstrating the resilience of the service model. The "Innovation & Others" segment, likely including early-stage robotics and other new ventures, showed strong revenue growth (+41.41%) and high profitability (70.41% margin), highlighting the potential of new business lines to offset PV cyclicality.

2. Operational Metrics: Balance Sheet De-leveraging and Cash Flow Optimization

The company is actively managing its working capital to navigate the industry downturn, resulting in improved liquidity metrics despite the top-line pressure.

• Contract Liabilities: As of the end of 1H25, contract liabilities stood at CNY 187 million, a YoY decrease of 47.58%. This reflects the slower pace of new equipment orders in the depressed PV capex environment.
• Inventory: Inventory levels were reduced to CNY 765 million, a YoY decrease of 30.48%. This destocking effort helps mitigate the risk of asset impairment and frees up working capital.
• Expense Control: The period expense ratio increased to 21.19% (YoY +4.98 pct), primarily due to the denominator effect of falling revenue. However, absolute control remains tight. R&D expenses continued to grow as a percentage of revenue (6.16%, +0.70 pct YoY), underscoring the company’s commitment to innovation despite short-term profit pressures. Financial expenses rose to 2.81% (+2.16 pct YoY), likely due to interest costs on existing debt structures, but management is actively optimizing debt profiles.

3. Industry Dynamics: PV Sector "Anti-Involution" and Supply-Side Optimization

The photovoltaic industry is undergoing a critical phase of supply-side reform. Government policies and industry associations are increasingly emphasizing high-quality development and curbing无序竞争 (disorderly competition). This "anti-involution" trend is manifesting in several ways that benefit market leaders like Gaoce Shares:

• Price Stabilization: Silicon wafer prices have begun to rise from their historical lows, indicating that the market clearing process is nearing completion. As prices stabilize, margins for slicing services and equipment are expected to recover.
• Specialization Trend: The industry is moving towards greater specialization. With silicon wafer manufacturing becoming a buyer’s market, integrated manufacturers are increasingly outsourcing slicing processes to specialized providers who can offer lower costs through scale and technological expertise. Gaoce, as a leading independent slicing service provider, is well-positioned to capture this outsourced demand.
• Technological Moat: Gaoce’s unique "Equipment + Consumables + Slicing Service" closed-loop model creates a self-reinforcing competitive advantage.
  • Equipment: Provides the latest cutting technology.
  • Consumables (Diamond Wire): Ensures optimal performance of the equipment.
  • Service: Generates real-world data and process know-how, which feeds back into equipment and wire R&D.
    This integration allows Gaoce to achieve higher yield rates and lower non-silicon costs than competitors, creating a barrier to entry that is difficult to replicate.

4. Strategic Expansion: Entering the Humanoid Robotics Supply Chain

Perhaps the most compelling aspect of Gaoce’s investment thesis is its successful pivot into the humanoid robotics sector. The company is leveraging its core technologies in grinding and tungsten materials to address two critical bottlenecks in robot manufacturing: linear actuators and dexterous hands.

A. Planetary Roller Screw Grinding Machines

• Market Context: Planetary roller screws are the core component of linear actuators in humanoid robots (e.g., Tesla Optimus), providing high load capacity and precision in a compact form factor. The manufacturing of these screws requires high-precision grinding machines, which have traditionally been dominated by European and Japanese suppliers.
• Gaoce’s Advantage: The company has extensive experience in high-precision grinding equipment for PV wafers and sapphire materials. It has successfully transferred this technical know-how to develop dedicated grinding machines for planetary roller screws.
• Timing: With Tesla’s Optimus expected to enter small-batch mass production in 2025, the demand for upstream manufacturing equipment is poised for an initial surge. Gaoce’s early entry allows it to establish relationships with key Tier 1 suppliers and potentially secure a significant share of the domestic substitution market.

B. Tungsten Wire Tendon Ropes for Dexterous Hands

• Market Context: Dexterous hands require tendon-driven systems to mimic human finger movements. Traditional materials like polyethylene (PE) or steel wires face challenges regarding strength-to-weight ratio, creep resistance, and durability.
• Gaoce’s Innovation: Leveraging its leadership in tungsten wire diamond lines, Gaoce has developed tungsten-based tendon ropes.
  • Performance Benefits: Tungsten offers superior tensile strength and anti-creep properties compared to polymers. This translates to more precise, stable, and responsive hand movements, crucial for complex manipulation tasks.
  • Status: Product development is complete, and the company is actively sending samples to downstream robot manufacturers for verification. Successful validation could lead to rapid adoption given the performance advantages.

This dual-pronged approach (equipment + material) positions Gaoce not just as a participant, but as a key enabler in the nascent humanoid robotics supply chain.

Risks / Headwinds

While the outlook is positive, investors must consider the following risks:

1. Photovoltaic Industry Demand Uncertainty:

   • Despite signs of stabilization, the global PV market remains sensitive to macroeconomic conditions, trade policies (e.g., tariffs in the US and EU), and interest rate environments. If downstream demand for solar installations falls short of expectations, the recovery in slicing services and equipment orders could be delayed or weaker than anticipated.
   • Impact: Could lead to further pressure on revenues and margins in 2025-2026.

2. Technology Iteration and Competition in PV:

   • The PV industry is characterized by rapid technological changes (e.g., transition from P-type to N-type cells, thinner wafers). If Gaoce fails to keep pace with these changes or if competitors introduce disruptive slicing technologies, its market share and pricing power could erode.
   • Impact: Potential loss of competitive advantage in the core business.

3. New Business Industrialization Risks (Robotics):

   • The humanoid robotics sector is still in its early stages. Mass production timelines, especially for Tesla Optimus and other competitors, are subject to change.
   • Technical validation of Gaoce’s grinding machines and tungsten tendons is ongoing. Failure to meet stringent performance specifications or delays in customer certification could postpone revenue contributions from this segment.
   • Impact: The "second growth curve" may take longer to materialize, affecting near-term valuation premiums.

4. Raw Material Price Volatility:

   • The cost of tungsten and other raw materials for diamond wires can fluctuate. While Gaoce has some pass-through mechanisms, sharp increases in input costs could squeeze margins if not fully passed on to customers.

5. Financial Risk:

   • The company currently operates with a net loss. Continued losses could strain cash reserves if operating cash flow does not turn positive as projected. The debt-to-asset ratio stands at 52.70%, which is manageable but requires careful monitoring in a high-interest-rate environment.

Rating / Sector Outlook

Sector Outlook: Photovoltaics & Robotics

Photovoltaics:
The PV sector is transitioning from a phase of chaotic expansion to one of consolidated, high-quality growth. Policy interventions in China are effectively curbing excessive capacity additions, leading to a healthier supply-demand balance. We expect industry profits to bottom out in 2025 and gradually recover in 2026-2027. Leaders with technological moats and integrated business models, like Gaoce, are best positioned to benefit from this consolidation. The shift towards specialized outsourcing in slicing services is a structural tailwind for Gaoce.

Humanoid Robotics:
This sector is on the cusp of commercial breakthrough. 2025 is widely regarded as the "Year One" for humanoid robot mass production. The supply chain for core components (actuators, sensors, materials) is experiencing unprecedented attention and investment. Companies that can provide high-performance, cost-effective solutions early in the cycle stand to gain significant market share and valuation re-rating. Gaoce’s entry into this space is timely and strategically sound.

Investment Rating: BUY (Maintained)

We maintain our BUY rating on Gaoce Shares. The current stock price of CNY 11.26 reflects the trough in PV earnings but does not fully price in the potential upside from the robotics business and the cyclical recovery in PV margins.

Valuation Analysis:

Note: Data sourced from Dongwu Securities Research Institute estimates.

The high P/E ratio for 2025 (161x) is an artifact of the low earnings base during the industry trough. Investors should focus on the forward P/E ratios for 2026 (67x) and 2027 (35x), which indicate a return to reasonable valuation levels as earnings normalize and grow. The projected compound annual growth rate (CAGR) for net profit from 2025 to 2027 is substantial, driven by both operational leverage in PV and new revenue streams from robotics.

Investment View

1. Core Investment Logic: Cyclical Recovery Meets Structural Innovation

Gaoce Shares presents a compelling dual-narrative investment opportunity. On one hand, it is a play on the cyclical recovery of the photovoltaic industry. The worst of the price war is likely over, and the company’s dominant position in slicing services ensures it will be a primary beneficiary of margin normalization. On the other hand, it is a structural growth story driven by its expansion into humanoid robotics. This diversification reduces reliance on the volatile PV cycle and opens up a total addressable market (TAM) with much higher growth potential.

2. Detailed Business Drivers

A. Photovoltaic Business: The Cash Cow Stabilizing

• Slicing Services (OEM): This segment is the key to short-term profitability recovery. As silicon wafer prices rise, the spread between slicing fees and costs will widen. Gaoce’s scale allows it to operate at lower unit costs than smaller competitors. We expect this segment to return to positive gross margins in H2 2025 and contribute significantly to profit in 2026.
• Equipment & Consumables: While equipment sales are cyclical and dependent on capex cycles, the consumables business (diamond wire) provides recurring revenue. The integration of equipment and consumables ensures customer stickiness. As the industry adopts thinner wafers and harder materials (like N-type silicon), the demand for high-quality, specialized diamond wires increases, favoring Gaoce’s premium product lineup.

B. Robotics Business: The Option Value

• Planetary Roller Screw Grinders: This is a high-barrier, high-margin equipment business. Domestic substitution is a strong theme in China’s manufacturing sector. If Gaoce can capture even a modest share of the domestic grinder market for robot screws, the revenue impact could be significant relative to its current size.
• Tungsten Tendon Ropes: This is a high-volume, high-tech material play. If adopted by major robot manufacturers, this could become a standard component, generating steady, high-margin recurring revenue similar to its diamond wire business but in a faster-growing market.

3. Financial Forecast and Sensitivity

Our forecasts assume a gradual recovery in PV margins and a slow but steady ramp-up in robotics revenue.

• Base Case: PV margins recover to mid-teens by 2026. Robotics revenue contributes ~5-10% of total revenue by 2027. Net profit reaches CNY 241 million in 2027.
• Bull Case: Faster-than-expected PV price recovery and rapid adoption of Gaoce’s robotics products. Net profit could exceed CNY 300 million in 2027.
• Bear Case: Prolonged PV downturn and failure of robotics products to gain traction. Net profit remains flat or negative, leading to multiple compression.

Key Financial Projections (CNY Million):

Observation: The forecast shows a clear turnaround in operating profit from negative in 2024 to positive in 2025, accelerating in 2026-2027. Gross margins are expected to expand annually, driven by product mix shifts and operational efficiencies.

4. Strategic Recommendations for Institutional Investors

1. Accumulate on Weakness: Given the volatility in the PV sector, any short-term dips in stock price due to broader market sentiment or temporary PV news flow should be viewed as buying opportunities. The long-term trajectory is upward.
2. Monitor Robotics Milestones: Keep a close watch on announcements regarding customer validations for the tungsten tendon ropes and orders for the screw grinding machines. These catalysts will drive re-rating of the stock.
3. Track Quarterly Margins: The sequential improvement in Q2 gross margin is the most important near-term metric. Confirmation of further margin expansion in Q3 and Q4 2025 will validate the recovery thesis.
4. Long-Term Hold: Gaoce is transitioning from a pure-play PV cyclical stock to a diversified tech-manufacturing platform. This structural change warrants a higher valuation multiple over time. Institutional investors with a 12-24 month horizon should consider establishing or increasing positions.

5. Conclusion

Gaoce Shares is navigating a challenging industry environment with resilience and strategic foresight. The Q2 2025 results confirm that the company is successfully managing the downturn, with losses narrowing and margins stabilizing. More importantly, the company is not merely waiting for the PV cycle to turn; it is actively building the next engine of growth in humanoid robotics.

The combination of a recovering core business and a high-potential new venture makes Gaoce Shares an attractive investment candidate. The risks are well-understood and largely priced in at current levels. As the PV industry clears and the robotics sector accelerates, Gaoce is poised to deliver significant shareholder value. We reaffirm our BUY rating, with a positive outlook for the next 6-12 months and beyond.

Appendix: Detailed Financial Analysis & Data Tables

A. Balance Sheet Analysis (CNY Million)

Analysis: The balance sheet remains healthy. The increase in inventory in 2025E reflects anticipation of higher demand, while receivables are managed tightly. The debt ratio is stable, indicating no excessive leverage risk.

B. Cash Flow Statement Analysis (CNY Million)

Analysis: The turnaround in operating cash flow from negative in 2024 to positive in 2025E is a critical signal of improved working capital management and earnings quality. CapEx remains moderate, focusing on efficiency rather than aggressive expansion.

C. Valuation Multiples Comparison

Analysis: The ROIC and ROE are projected to improve steadily, aligning with the recovery in net profits. The P/B ratio remains below 2x, suggesting the stock is not overvalued relative to its asset base, providing a margin of safety.

Final Remarks

Gaoce Shares represents a classic example of a mature industrial company successfully pivoting towards high-growth emerging markets. The management’s ability to maintain R&D spending during a downturn and leverage existing technical capabilities for new applications (robotics) demonstrates strong strategic execution.

For institutional investors, the key is to look past the transient losses in the PV segment and focus on the structural improvements in margins and the optionality provided by the robotics business. The risk-reward profile is favorable, with limited downside given the asset backing and significant upside potential from the dual engines of PV recovery and robotics adoption.

Disclaimer: This report is based on information available as of September 02, 2025, and includes forecasts made by Dongwu Securities Research Institute. Investors should conduct their own due diligence and consider their risk tolerance before making investment decisions. The ratings and target prices are subject to change based on market conditions and company performance.