Compiled by Zhineng Zhixin

In the realm of automotive electronics, audio systems stand out as a sector brimming with growth potential.

◎ Shangsheng Electronics reported a revenue of 1.424 billion yuan for the first half of the year, marking a 4.23% year-on-year increase;

◎ Its comprehensive gross profit margin climbed from 20.26% to 21.62%;

◎ However, net profit attributable to shareholders plummeted to only 39.8 million yuan, reflecting a 53.07% decrease;

◎ Net profit after excluding non-recurring gains and losses stood at 39.27 million yuan, down by 50.20%.

In essence, profits were eroded by 66.23 million yuan due to adverse currency exchange rates. During the same period last year, the company enjoyed a foreign exchange gain of 41.06 million yuan, which reversed into a foreign exchange loss of 25.16 million yuan this year. The cumulative impact of these positive and negative swings amounted to 66.23 million yuan, surpassing the 45.02 million yuan decline in net profit attributable to shareholders.

Part 1: Profitability Slashed in Half—Is the Audio Business Truly in Decline?

Upon closer examination of quarterly performance, Shangsheng Electronics faced significant pressure primarily in the second quarter.

◎ First-quarter revenue reached 687 million yuan, an 8.05% year-on-year increase, with net profit attributable to shareholders at 24.32 million yuan, down by 10.99%;

◎ Second-quarter revenue rose to 737 million yuan, but the year-on-year growth rate slowed to just around 0.9%, with net profit attributable to shareholders plummeting to 15.48 million yuan, a staggering 73.1% decrease year-on-year.

◎ Gross profit for the first half of the year approximated 308 million yuan, up by 31.2 million yuan year-on-year; combined sales, administrative, and R&D expenses increased by approximately 10.42 million yuan year-on-year, signaling some operational improvements. Non-recurring gains and losses amounted to only 536,600 yuan, accounting for 1.35% of net profit attributable to shareholders, with the decline almost entirely attributable to core business operations.

◎ Financial expenses for the first half of 2025 were -26.08 million yuan, effectively representing financial income;

◎ However, in the first half of 2026, these expenses surged to +44.32 million yuan, a stark difference of 70.4 million yuan.

Notably, foreign exchange gains and losses shifted from positive to negative, directly reversing the trend.

◎ Total profit for the first half of 2026 amounted to 48.13 million yuan. Adjusting for the 25.16 million yuan in foreign exchange losses, the pre-tax profit, neutral to exchange rate fluctuations, was approximately 73.29 million yuan;

◎ During the same period in 2025, total profit stood at 96.13 million yuan. Deducting the 41.06 million yuan in foreign exchange gains, the pre-tax profit, neutral to exchange rates, was approximately 55.06 million yuan. Based on this, the pre-tax profit from Shangsheng Electronics' core business grew by approximately 30%.

The quarterly revenue growth rate has been on a downward trajectory for three consecutive quarters: 13.55% in the fourth quarter of last year, 8.05% in the first quarter of this year, and a mere 0.9% in the second quarter. Despite an improvement in the gross profit margin year-on-year, the second quarter's margin was about 1 percentage point lower than that of the first quarter.

Shangsheng Electronics' product portfolio primarily comprises in-vehicle speakers, in-vehicle amplifiers, and AVAS (Acoustic Vehicle Alerting Systems).

While all three product categories are sound-related, their business models exhibit distinct differences.

◎ Speakers: Although the quantity is on the rise, the hardware itself remains a mature component.

The absence of engine noise in new energy vehicles renders the interior quieter, heightening users' sensitivity to audio quality.

Domestic brands and new energy vehicle manufacturers leverage audio as a selling point for the cabin experience, increasing the number of speakers per vehicle from the traditional 4-8 to over a dozen or even twenty, with flagship models boasting up to thirty or forty speakers. This trend provides Shangsheng with growth opportunities in terms of per-vehicle speaker quantities.

The costs of magnets, voice coils, frames, and plastic parts for ordinary speakers are transparent, leading automakers to standardize and centrally procure these products for models on the same platform.

Shangsheng's barrier to entry lies in its integration into the automaker's synchronous development system, encompassing speaker layout, structural matching, vehicle tuning, and stable mass production.

The impact of automakers' in-house R&D on acoustic suppliers also differs from that in the intelligent driving sector.

Automakers can develop their own sound interfaces, cabin OS, and user preference algorithms but rarely find it necessary to produce speakers, paper cones, and frames in-house. By controlling audio brands, software entry points, and system definitions, they can outsource hardware, tuning, and mass production to suppliers like Shangsheng.

While Shangsheng's risk of replacement is not high, automakers can still compress profits through platform-based procurement and annual price reductions.

◎ Amplifiers: The key transition from components to systems, most susceptible to chip and software boundaries.

Digital amplifiers not only amplify signals but also incorporate DSP (Digital Signal Processing), sound field processing, active noise cancellation, and multi-zone sound control.

If amplifiers are delivered along with speakers, algorithms, and vehicle tuning, Shangsheng can upgrade from selling speakers to selling complete acoustic systems, enhancing per-vehicle value and customer stickiness.

The challenge lies in the fact that part of the core value of amplifiers resides in chip platforms and algorithms.

Automakers, branded audio companies, and cockpit domain controller suppliers all aspire to control the sound entry point. Shangsheng must demonstrate that its algorithms, hardware, and tuning can form a holistic advantage, rather than merely acting as a contract manufacturer for amplifier boards.

Rating materials indicate that some clients have adjusted amplifier demand downward due to model platform changes, highlighting that amplifiers are more susceptible to single-project timing impacts than speakers.

◎ AVAS: Demand is certain, with pricing power hinging on its ability to evolve from mere warning sounds to sophisticated sound design.

Electric vehicles are mandated to emit warning sounds at low speeds, ensuring AVAS regulatory demand and guaranteeing market penetration. However, the most basic AVAS consists of merely a controller plus a sound unit, easily standardized.

The high-value aspects lie in sound algorithms, simulated engine sounds, integration with vehicle status, and combining HORN and AVAS into a single unit.

Shangsheng is developing active noise cancellation, 7.1.4 amplifiers, AI-personalized sound fields, and combined HORN and AVAS products, showcasing 60-speaker and diamond tweeter solutions.

Diamond tweeters are already in mass production and delivery, but the 60-speaker setup represents more of a technical ceiling than mainstream adoption. What ultimately determines profits is whether these technologies can be applied to high-volume vehicle platforms. The number of speakers on a prototype does not necessarily indicate this.

Part 2: Overseas Revenue Approaches 40%

Shangsheng Electronics' main business boasts an export ratio of 37.73%, with U.S. revenue accounting for 9.48%. It has established production bases in Suzhou, Hefei, the Czech Republic, Brazil, and Mexico, following automakers in local development and delivery.

Globalization brings significant value to Shangsheng.

◎ Entering global platforms like Mercedes-Benz, Volkswagen, and international electroacoustic brands extends project cycles; local production in Europe and the Americas shortens transportation distances and enhances customer response times.

◎ The Hefei plant achieved an interim turnaround in the first half of the year, while losses at the Czech plant narrowed significantly, indicating improving operational efficiency for new global capacity.

Assets and liabilities denominated in USD, EUR, CZK, MXN, and BRL are all susceptible to exchange rate fluctuations.

Shangsheng already employs forward foreign exchange contracts to manage risks but still incurred 25.16 million yuan in foreign exchange losses in the first half of the year. For a company with nearly 40% of revenue derived from overseas, exchange rates have become an integral part of its business model.

A more effective solution is to align procurement, production, and sales in the same currency, forming a natural hedge through overseas factories; simultaneously, increase local procurement ratios to reduce foreign currency exposure from unilateral supply from the parent company to overseas subsidiaries.

True globalization means that exchange rate fluctuations no longer dictate the direction of semi-annual profits, with high overseas revenue being merely the first step.

Cash flow performance outperforms profits.

◎ Operating cash flow reached 91 million yuan, a 47.11% year-on-year increase, 2.28 times the net profit attributable to shareholders.

◎ Accounts receivable decreased from 986 million yuan at the beginning of the year to 849 million yuan, indicating improved collections;

◎ Inventory increased from 447 million yuan to 510 million yuan, up by 14.1%, with overseas factories and new projects still tying up funds.

◎ Net cash outflow from investing activities in the first half of the year was 373 million yuan, largely attributable to wealth management and financial asset allocations;

◎ Net cash inflow from financing activities was 309 million yuan, related to borrowings and convertible bond financing.

◎ The company's ending cash balance was approximately 503 million yuan, providing decent on-hand liquidity, but interest-bearing debt and interest expenses are also on the rise. Whether overseas factories can continue to reduce losses will determine whether financing costs continue to erode operational improvements.

Summary

Shangsheng Electronics has successfully integrated into the global automotive supply chain, with overseas revenue accounting for nearly 40%. Exchange rates wield significant influence, and amplifiers, algorithms, and global capacity have emerged as key profit drivers.