On July 21, Hong Kong-listed company HORIZONROBOT-W (09660.HK) released its unaudited interim performance forecast for the first half of 2026. The announcement indicates the company expects a profit for the period of between 3.5 billion and 4.0 billion yuan, turning a paper profit compared to a loss of 5.233 billion yuan in the same period of 2025.

Customer contract revenue from continuing operations for the same period is projected to be between 1.93 billion and 2.08 billion yuan, representing a year-on-year increase of 24.8% to 34.5%. However, behind this seemingly bright 'profit alert' lies an operational reality starkly different from the surface figures.

Paper Wealth from Fair Value Changes

The significant positive swing in HORIZONROBOT-W's paper profit was not primarily driven by improvements in its core business operations. The announcement explicitly states that the profit is "mainly attributable to the fair value change of the convertible loan issued to CARIAD due to fluctuations in the Group's share price."

According to public information, Volkswagen Group's software unit CARIAD holds convertible bonds in Horizon with a principal amount of $925 million. This investment was a key part of Volkswagen's participation in Horizon's Series D financing and subsequent collaboration.

The conversion price for these bonds is HK$3.99 per share, and they are set to mature on December 7, 2026, at which point mandatory conversion terms will be executed. Company insiders have acknowledged that the fair value change from this convertible bond is a "one-off factor" and not a regular occurrence.

HORIZONROBOT-W clearly cautioned in its announcement that this paper profit is "not derived from the Group's principal business operations" and "constitutes a non-cash, non-recurring accounting volatility, which does not reflect changes in the Group's operating cash flows."

To reveal the true operational performance, the company disclosed its adjusted net loss under non-IFRS measures, which is expected to be between 1.4 billion and 1.7 billion yuan. This represents a widening loss compared to the adjusted net loss of 1.333 billion yuan in the same period of 2025.

Revenue Growth Without Profit, High R&D Continues to Burn Cash

Despite the revenue growth, HORIZONROBOT-W's core operational metrics continue to face multiple pressures. In terms of revenue structure, the proportion from product solutions continues to rise, while the share from the higher-margin licensing and services business has declined. This structural shift is putting pressure on the overall gross margin.

For the full year 2025, the company's comprehensive gross margin had already decreased to 64.5% from 77.3% in 2024. Of greater concern is the persistently high level of research and development investment.

In 2025, Horizon's annual R&D expenses reached as high as 5.154 billion yuan, a year-on-year increase of 63.3%, accounting for 137.1% of its revenue. This means the company was in a state where for every 1 yuan of revenue earned, it needed to invest approximately 1.371 yuan in R&D.

During the same period, sales and marketing expenses were 632 million yuan, up 54.2% year-on-year. The substantial R&D and market expansion costs continue to outpace the gross profit from the main business, resulting in operating losses.

The company's net cash flow from operating activities in 2025 was negative 2.106 billion yuan. CLSA anticipates that Horizon's R&D expenditure in 2026 and 2027 will be no less than 5 billion yuan annually and predicts the company may not achieve breakeven until 2028.

Morgan Stanley also noted that, prior to the launch of the next-generation Journey 7 (J7) intelligent driving chip platform expected around the end of this year to early next year, R&D expenses for 2026-2028 will be higher than previously expected.

Furthermore, the potential threat from core customers developing their own chips cannot be ignored. On May 28, 2026, BYD launched China's first mass-produced 4nm automotive-grade intelligent driving chip, the "Xuanji A3," with a single-chip computing power exceeding 700 TOPS.

Although this chip is still in the production ramp-up phase and unlikely to materially impact 2026 orders in the short term, the market has already reacted. The gradual introduction of BYD's in-house chips is expected to squeeze Horizon's share within BYD's supply chain.

Share Price Halved and Expectations Downgraded

The capital market has already responded to HORIZONROBOT-W's operational situation. On September 18, 2025, Horizon's share price reached a historical high of HK$11.32, with its market capitalization once exceeding HK$150 billion.

However, as of the close on July 21, 2026, the share price was HK$4.45, representing a decline of approximately 60% from its peak. Faced with the continuous decline in the share price, CEO Yu Kai has made multiple public statements.

At the shareholders' meeting on June 10, 2026, when directly asked about his view on the share price pressure, he stated that he still "maintains a normal mindset towards short-term stock price fluctuations." He invoked Warren Buffett's classic investment philosophy, stating, "The stock market is a voting machine in the short term and a weighing machine in the long term."

To encourage the team and investors, he cited Tesla as an example, saying, "Historically, many companies have experienced significant adjustments; Tesla also went from $400 to $100." He expressed confidence that "we will prove, and time will prove Horizon's long-term value."

Several institutions have already downgraded their profit forecasts and target prices for the company. Goldman Sachs lowered its target price from HK$15.3 to HK$13.14, a 14.1% reduction, and expects the company to post net losses of 4.5 billion yuan and 80 million yuan in 2026 and 2027 respectively, worse than previous expectations. The main reason for the downgrade is lower-than-expected revenue from the J3/J5 platforms.

Morgan Stanley reduced its target price from HK$11.5 to HK$10. CMB International also lowered its target price from HK$10 to HK$7.8, based on a 10x price-to-sales ratio for 2027 (down from a previous 13x). CMB International forecasts the company will post net losses of 1.69 billion yuan and 166 million yuan in 2026 and 2027, respectively.

However, some institutions still maintain a relatively positive view on Horizon's long-term value. CMB International believes market concerns about automakers developing their own chips "underestimate the stability of its core business and overlook the potential for a growth curve inflection." Goldman Sachs remains optimistic about the company's ability to increase average selling prices and profit margins through product portfolio upgrades.