Results Review

1Q26 results slightly beat our expectations

China Jushi announced its 1Q26 results: Revenue rose 17.93% YoY to Rmb5,282mn, net profit attributable to shareholders grew 73.48% YoY to Rmb1,267mn, recurring net profit attributable to shareholders rose 71.43% YoY to Rmb1,276mn, and non-recurring income was -Rmb9mn. The firm's 1Q26 results slightly beat our expectation, which we attribute to sharper-than-expected price hikes of ordinary electronic fabrics.

Trends to watch

Price hikes of electronic fabrics sharper than expected; upbeat on earnings growth. In 1Q26, the firm’s gross margin rose 9ppt YoY to 39.64% and its net margin reached 25%, which we attribute to sharper-than-expected price hikes of ordinary electronic fabrics.

Roving: According to our calculation, we think net profit per tonne of the firm’s roving products increased steadily QoQ in 1Q26, mainly due to expense ratio reduction. We believe the contribution from price hikes in long-term contracts to the firm’s roving products may become more obvious starting from 2Q26.

Electronic fabrics: Data from sci99.com shows that the average tax-inclusive price of ordinary thick electronic fabrics in the industry reached Rmb5.3/meter in 1Q26 and Rmb6.2/meter in early April. We attribute the sharper-than-expected price hikes of electronic fabrics to a shortage of high-quality looms and a temporary shortage of ordinary electronic fabrics as some manufacturers switched to the production of special electronic fabrics for AI. As no new production capacity for electronic fabrics was unleashed in 1Q26, manufacturers continued to reduce inventories, supporting price hikes. In addition, we think the proportion of high-end electronic fabrics has increased at Jushi.

Asset turnover efficiency improved; financial expense ratio edged up. In 1Q26, the firm's inventory turnover days fell by 19 days YoY, accounts receivable turnover days fell by 3 days YoY, and accounts payable turnover days fell by 7.5 days YoY. In addition, the firm's overall expense ratio stayed flat YoY at about 10% in 1Q26, and its financial expense ratio rose 1.3ppt YoY, possibly due to FX impact.

Rising overseas energy prices to benefit leading roving companies; tight balance between electronic fabric supply and demand to continue. We think domestic roving prices may rise slightly in 2026, and rising overseas energy prices may benefit leading companies with overseas production sites, stable low-price gas sources, and exposure to the European market. In addition, we expect the shortage of looms to continue, bolstering the average price of electronic fabrics. Previously, the first phase of the firm’s Huai’an base (50,000t) started operation, which we think may gradually boost earnings.

Financials and valuation

As electronic fabric price hikes beat our expectations, we raise our 2026 and 2027 EPS forecasts by 19% and 19% to Rmb1.50 and Rmb1.76. The stock is trading at 22x 2026e and 19x 2027e P/E. As we think the firm may make progress in special electronic fabrics, which could boost its valuation, we maintain OUTPERFORM rating and raise our TP by 35% to Rmb40, offering 21% upside.

Risks

Demand recovery disappoints; capacity expansion faster than expected; price hikes disappoint.