Key Morningstar Metrics for CXMT
- Fair Value Estimate: CNY 16.10
- Morningstar Rating: ★
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: Medium
We initiate coverage of CXMT, or ChangXin Memory Technologies 688825 the fourth-largest DRAM player globally. CXMT’s IPO offering of 6.7 billion shares represented 10% of its free float postissuance at an initial valuation of CNY 8.66 per share. Shares closed at CNY 49, 466% higher than offering price.
The bottom line: Our fair value estimate for CXMT is CNY 16.10. While initially cheap to the IPO price, shares now look overvalued after its close. We do not think CXMT has a moat, as we view DRAM chips as broadly commoditized products with little differentiation and low switching costs.
- Our fair value implies a 2027 price/book ratio of 1.8 times, above IPO prices implied by 2027 book value, as we expect a valuation uplift from the ongoing upcycle. Shares rose sharply amid strong domestic interest as onshore investors hopped on the memory supercycle, but we see the rally as overdone.
Long view: We see the current memory undersupply driving strong DRAM prices as temporary. We foresee sharp capacity growth from memory makers in late 2027 and into 2028, improving the currently tight demand-supply dynamics and driving price erosion.
- With our view of tail-end cyclicality in mind, our midcycle operating margin is 27%, well below our 2026 and 2027 margin estimates of 75% and 80%, respectively. We believe the market is overly optimistic about CXMT’s ability to maintain high memory prices and profitability.
Between the lines: We expect CXMT’s heavy investments to continue, given China’s focus on technological self-sufficiency. We think the gap between CXMT and memory leaders will not shrink materially, given export restrictions on chip equipment, and foresee its pricing power falling short of peers’.
- CXMT is well-positioned to capitalize on rising domestic AI demand. It is expected to commercialize HBM3 by 2026, and tightening chip export restrictions to China amid a rapid emergence of domestic artificial intelligence chips that use HBM allows CXMT to fill the supply gap.
