Deming Li plunges 10% as Q2 profit miss triggers limit-down rout

Deming Li reported H1 net profit of as much as 6.5 billion yuan, but Q2 earnings missed estimates, sending shares to a limit-down.

"The AI technology sector's fundamentals are in an upward cycle, but trading has become too crowded, with some investors adding leverage," Yang Delong, chief economist at First Seafront Fund, said.

The Shenzhen-listed storage chip maker posted first-half revenue of 160 billion to 180 billion yuan, up 289 percent to 338 percent from a year earlier. Net profit reached 5.7 billion to 6.5 billion yuan, compared with a 118 million yuan loss in the same period last year. But the quarterly breakdown revealed a sharp deceleration: first-quarter net profit of 3.35 billion yuan gave way to an implied second-quarter range of 2.35 billion to 3.15 billion yuan, a sequential decline of 5.7 percent to 29.7 percent.

The selloff wiped out 10 percent of Deming Li's market value in a single session, with 6.7 billion yuan in sell orders piling up at the open. The stock closed at 662.40 yuan, its lowest since late May. The broader storage sector also slumped, with Biwin Storage falling 15 percent and Youyan Silicon dropping 14 percent.

The profit deceleration stems from a narrowing gross margin as cheap inventory accumulated during the earlier phase of the memory upcycle gets consumed. Deming Li's first-quarter gross margin hit 57.42 percent, a historical peak, as the company's weighted-average cost method delayed the impact of rising wafer prices. That cushion is now fading. Second-quarter revenue still grew about 25 percent sequentially to a midpoint of 94.6 billion yuan, but cost growth outpaced price gains.

The company's balance sheet shows strain beneath the headline numbers. Inventory reached 121.9 billion yuan at the end of the first quarter, representing 65 percent of total assets. Operating cash flow was negative 241 million yuan in the first quarter, meaning the company burned cash for every yuan of book profit. Deming Li announced a 32 billion yuan private placement in November to fund SSD and memory product expansion, adding dilution risk on top of the operational pressure.

The stock had surged 784 percent over the past 12 months, making it one of the best-performing names in the A-share semiconductor sector. That rally priced in continued acceleration. The second-quarter inflection shifts the narrative from growth expectations to growth verification. Investors will watch the interim report for actual second-quarter gross margin data and inventory turnover, with the next catalyst being the company's full mid-year filing.

This article is for informational purposes only and does not constitute investment advice.