1Q25 results in line with our expectations

China Jushi announced its 1Q25 results: Revenue rose 32% YoY to Rmb4.5bn, net profit attributable to shareholders grew 109% YoY to Rmb730mn, and recurring attributable net profit grew 322% YoY to about Rmb744mn. Among non-recurring items, disposal of non-current assets (including write-off of provisions for asset impairment) incurred losses of Rmb40.31mn. The 1Q25 results are in line with our expectations.

In 1Q25, sales volume and prices of high-end products (e.g., fiberglass for turbine blades and chopped strands) increased, and the firm's earnings improved substantially YoY. We believe that high-end fiberglass products delivered stronger revenue growth in 1Q25, thanks to ample downstream wind power production and strong demand from automobiles and home appliances. Data from sci99.com shows that inventories in the fiberglass industry approached 800,000t at the end of March, and only edged up in the traditional slack season for demand. Inventories in Tongxiang fell 17% from end-2024 to 170,000t. The firm slightly raised prices for long-term contracts for chopped strands and fiberglass for turbine blades on the back of strong demand. In addition, the industry-wide tax- inclusive ASP of 7628 electronic fiberglass edged up YoY to Rmb4.2/m in 1Q25.

Expense ratio fell 2.8ppt YoY. The firm's expense ratio fell 2.8ppt YoY to 9.3% in 1Q25, with selling, G&A, financial, and R&D expense ratios down 0.3ppt, 1.6ppt, 0.6ppt, and 0.4ppt YoY to 1%, 3.7%, 1.2%, and 3.4%.

Inventory turnover days declined; inventory pressure marginally eased. In 1Q25, the firm's inventory turnover days fell 14 days QoQ and 29 days YoY to 118 days, due to increased sales volume of high-end products and effective control over production capacity. In addition, its accounts receivable turnover days fell 4 days YoY to 46 days.

Pressure on net operating cash flow eased marginally; capex declined. The firm's net cash flow from operating activities reached - Rmb92mn in 1Q25 (vs. -Rmb191mn a year earlier), implying marginal easing of cash pressure. In addition, as an industry leader, the firm prioritized capacity expansion, and its capex reached Rmb204mn in 1Q25 (vs. Rmb435mn a year earlier).

Trends to watch

Price hikes to boost earnings recovery; tariffs to weigh on overseas fiberglass demand. We think price hikes of chopped strands, fiberglass for turbine blades, and electronic fiberglass have gradually materialized, and the price hikes of fiberglass roving had been implemented by end-1Q25. We think the price increases may be reflected in 2Q25 earnings. Considering the additional tariffs may directly or indirectly affect fiberglass demand, we suggest watching whether domestic policy stimulus will boost the use of fiberglass in infrastructure construction and consumer goods (e.g., automobiles and home appliances), and whether it will offset the tariff impact on exports remains to be seen.

Financials and valuation

We maintain our 2025 and 2026 EPS forecasts of Rmb0.88 and Rmb1.01. The stock is trading at 14x 2025e and 12x 2026e P/E. We maintain an OUTPERFORM rating and target price of Rmb14.9, implying 17x 2025e and 15x 2026e P/E, offering 24% upside.

Risks

Recovery of domestic demand disappoints; tariffs weigh on overseas demand; capacity expansion of new production lines beats expectations.