Net profit expected to increase 50-fold, yet Demingli hits a limit-down at the opening—Has the storage narrative reached a turning point?

On July 15, Demingli opened with massive sell orders locking it at the limit down price of 662.40 yuan, a decline of 10%, with a transaction amount of 1.756 billion yuan and the highest limit-down sell order reaching 6.7 billion yuan. The previous night, the company disclosed its semiannual earnings forecast for 2026. Its first-half revenue is expected to be between 16 billion and 18 billion yuan, up 289% to 338% year-over-year, with net profit attributable to shareholders at 5.7 billion to 6.5 billion yuan, up 4933% to 5611% year-over-year.

Despite nearly 50-fold profit growth, the company still faced a limit-down. Breakdown by quarters shows first-quarter net profit at 3.346 billion yuan, and second-quarter extrapolated net profit is only 2.354 to 3.154 billion yuan, a sequential decline of 5.74% to 29.65%. After reaching a record gross margin of 57.42% in the first quarter, the second quarter faced natural pressure to retreat.

The entire memory sector is adjusting. BIWIN Storage fell 15%, Yoyan Silicon fell over 14%, Zhenbao Technology and Juchen shares fell over 12%. Wind data shows that Demingli's cumulative gain over the past year is 784%, 686% over the past five months, and this year the price hit as high as 980 yuan.

Behind the "good news, limit-down" phenomenon is the market's re-pricing of the marginal diminishing returns from rising memory prices. The AI-driven super-cycle continues, but after first-quarter profit momentum peaked, a turning point appeared, releasing tension between valuation and performance delivery.

The Two Sides of the Earnings Forecast

The semiannual earnings forecast disclosed by Demingli on the night of July 14th presents a strong year-over-year contrast. First-half revenue is expected at 16 to 18 billion yuan, up 289% to 338% from 4.109 billion yuan a year ago. Net profit attributable to shareholders is expected at 5.7 to 6.5 billion yuan, compared to a loss of 118 million yuan in the same period last year, up 4933% to 5611% year-over-year.

Quarterly breakdown exposes another side. The first quarter saw net profit of 3.346 billion yuan, gross margin at 57.42%, and net margin at 44.39%, all reaching historic highs. Based on the forecast range, second-quarter net profit attributable to shareholders is only 2.354 to 3.154 billion yuan, sequentially down 5.74% to 29.65%. Non-recurring net profit dropped even more quarter-over-quarter, at 6.57% to 30.56%.

First-quarter excess profits had an accounting basis. The company uses the month-end weighted average method to value outgoing inventory, i.e., business costs are calculated based on the weighted average price of all inventory in the month, not the latest purchase price. During the cycle of rising memory chip prices, cost changes lag the spot price. The high gross margin in the first quarter partially resulted from releasing the windfall of low-priced wafer inventory accumulated previously.

Entering the second quarter, this batch of low-priced inventory is gradually consumed and the cost of newly purchased wafers rises with the spot price. Even if memory products continue to rise, rising costs slow the margin expansion. The forecast didn't disclose second-quarter gross margin, but the direction of profits trending down is clear.

Revenue continues to grow. Using the median forecast of 17 billion yuan, second-quarter revenue is about 9.462 billion yuan, up 25% sequentially from 7.538 billion yuan in the first quarter. Revenue rising while profit falls points to the narrowing gross margin as the core contradiction, rather than weakening demand.

The Price Rise Windfall Is Thinning

The super-cycle in the memory industry continues. TrendForce data shows that in the first quarter of 2026, contract DRAM (dynamic random-access memory—the most common memory chip) prices rose 90% to 95% quarter-over-quarter, and NAND Flash (used for SSDs and mobile storage) prices rose 55% to 60%. Goldman's research notes that in 2026, global supply gaps for DRAM, NAND, and HBM reach 4.9%, 4.2%, and 5.1%, the highest in 15 years.

The slope of price rises is diverging. Second-quarter contract DRAM prices are expected to rise 58% to 63% quarter-over-quarter, significantly narrowing from the first quarter’s 90%. Conversely, NAND is expected to rise 70% to 75% in the second quarter, accelerating from the first quarter. Demingli mainly produces NAND flash products, theoretically still in the acceleration phase of price hikes.

Gross margin expansion depends not just on product price rises but also on the speed of rising costs. If Demingli's wafer procurement costs keep rising with spot prices, and product price increases cannot consistently outpace the cost increases, gross margin will soon top out and recede. The 57.42% gross margin in the first quarter was a window of low-priced inventory merging with a price-rise cycle—this window began closing in the second quarter.

CITIC Securities' May research clearly judged that this memory super-cycle began in the second quarter of 2025 and is still in its early stage. "Visibility of shortages is high in the next half year," and short supply is expected to last until at least the end of 2026. CMB Securities believes shortages may continue into 2027 or longer. Institutions agree on the cycle’s direction, but differ on its slope.

What Is the Market Pricing After a 784% Surge?

The 784% gain over the past year is the premise for understanding this limit down. According to Wind data, Demingli's price hit as high as 980 yuan this year, with a five-month cumulative gain of 686%. Using the July 14 closing price, the P/E ratio (TTM—based on profits in the past 12 months) is about 22.85 to 25.66 times. In the same period last year, the company was still loss-making; this valuation already reflects optimistic expectations.

"Good news realized" is the most direct explanation. Although the earnings forecast is bright year-over-year, the second-quarter sequential decline broke the linear extrapolation narrative. For funds entering at high levels, any marginal deterioration gets magnified. On July 15, the limit-down sell order hit 6.7 billion yuan, with turnover rate only 1.61%, liquidity nearly frozen.

Multiple negatives resonated at the same time. In 2025, Tai'an Jinchengyuan Enterprise Management Partnership, held by actual controller Tian Hua, sold 6.1662 million shares. In November of the same year, the company launched a 3.2 billion yuan private placement plan, for expanding SSD and memory product capacity. Major shareholder cash-outs plus fundraising dilution exert ongoing pressure at high prices.

Qianhai Kaiyuan Fund's chief economist Yang Delong pointed out that AI technology sectors are fundamentally in an upward cycle, but trading is too crowded, with some investors increasing leverage, leading related sectors to adjust. The memory sector plunged as a group that day; BIWIN Storage fell 15%, Yoyan Silicon fell over 14%—the correction wasn't Demingli’s unique pressure.

The Balance Sheet Beneath the Boom

The other side of high earnings growth is balance sheet concerns. At the end of 2025, Demingli's inventory book value was 7.058 billion yuan, accounting for 65.05% of total assets. The company warned in its annual report that if market prices fluctuate sharply in the future, it may face impairment risks if inventory net realizable value falls below cost. By the end of the first quarter, inventory had risen to 12.19 billion yuan.

Cash flow is also under pressure. Full-year 2025 operating cash flow was negative, and the first quarter of 2026 remained at -241 million yuan. The net cash/profit ratio is -7.2%; that is, for every 100 yuan of book profit, operating cash flow outflows 7.2 yuan. Expansion and inventory had consumed large amounts of cash, so the company relies on external financing to run—the 3.2 billion yuan private placement is an example.

The revenue assessment target for the stock incentive program provides an observation anchor. For 2026, the stock option exercise price is 237.08 yuan, with a revenue assessment target no less than 20 billion yuan and a trigger value of 18 billion yuan. The first half has completed 16 to 18 billion, so pressure to meet the target isn’t high. But if the sequential decline trend continues into the second half, the growth slope will slow noticeably.

Looking sideways, Demingli doesn’t monopolize the memory module track. Jiang Bolong’s first-quarter revenue was 9.909 billion yuan, higher than Demingli, with net profit for the first half expected to increase 62204% to 74394%. BIWIN Storage's first-quarter revenue was 6.814 billion yuan, net profit 2.899 billion yuan. GigaDevice's first-half revenue is expected to rise 177%. The industry-wide explosion means limited product differentiation.

Demingli’s self-developed PCIe/SATA dual-mode enterprise-grade SSD controller chip and multiple QLC embedded storage solutions have been mass-produced—an attempt to extend into higher value-added markets. The scale effect remains to be verified.

The Variables Most Worth Tracking Next Quarter

There are four variables most worth tracking next quarter. First is actual second-quarter gross margin; not disclosed in the forecast, but the interim report will provide a precise figure to verify the degree of decline. Second is inventory turnover; the digestion speed of 12.19 billion yuan in inventory directly relates to impairment risk. Third is wafer procurement cost in the second half, determining whether gross margin can stabilize. Fourth is the approval progress for the 3.2 billion yuan private placement, relating to production expansion pace and equity dilution.

The direction of the memory super cycle hasn’t changed, but Demingli’s valuation has shifted from the “growth expectation” to the “growth validation” stage. Whether the sequential turning point in the second quarter is a single-quarter fluctuation or the start of a trend, the interim report will give a clearer answer.

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