Key takeaway

The company is a leader in high-performance resins and fibers, with industry-leading production capacity for its key products, including epoxy resins, aramid fibers, and polymer additives. However, its profits were previously under pressure because its basic chemical businesses, including the C3 product chain and aromatics products, have sustained losses since 2023. As the chemical capacity expansion cycle draws to a close, the basic chemical business is expected to turn around. Meanwhile, the company plans to acquire a 100% equity interest in Nantong Xingchen to build a high-end resin materials platform, opening up long-term growth potential.

Event

1) The company's proposed acquisition of a 100% equity interest in Nantong Xingchen through a share issuance, which constitutes a related-party transaction, was recently accepted for review by the Shanghai Stock Exchange. According to the announcement, the company plans to acquire a 100% equity interest in Nantong Xingchen from Bluestar Group through a share issuance for a transaction consideration of RMB2.1099bn. Upon completion of the transaction, Bluestar Group will become a shareholder of the company with a 14.35% stake, while the company will acquire a 100% equity interest in Nantong Xingchen.

2) The company recently issued its earnings forecast for 1H26. It expects net profit attributable to shareholders of the parent company of RMB-258mn to RMB-322mn, with losses narrowing by 71% to 64% YoY, and net profit attributable to shareholders of the parent company excluding nonrecurring gains and losses of RMB-283mn to RMB-353mn, with losses narrowing by 66% to 58% YoY. According to the announcement, the YoY reduction in losses in 1H26 was attributable to the following factors: ① The gross margin of the basic raw materials and intermediates segment increased by 5-11 pcts YoY due to price increases for propylene oxide and other products; ② bisphenol A prices increased in the high-performance materials segment, while aramid fiber sales volume rose by 13% YoY. ③ The gross margin of the chemical materials marketing segment increased by 0.5-6.5 pcts YoY.

Risks:

(1) Crude oil prices rise or fall by more than expected: Crude oil prices are highly correlated with international political and economic conditions and are highly volatile. Sharp fluctuations in crude oil prices will affect product prices, price spreads and earnings stability across the company’s C3 and aromatics value chains, thereby affecting its profitability. The earnings estimates assume a relatively stable trend in crude oil prices. The gross margin of the basic raw materials and intermediates business, including C3 and aromatics products, is assumed to recover to 10%/10%/9% in 2026-2028, corresponding to net profit attributable to shareholders of the parent company of -RMB65mn/RMB401mn/RMB872mn, respectively. If crude oil prices remain volatile and the gross margin of the basic raw materials and intermediates business does not improve, assuming it remainsunchanged at the 2025 level of -0.47% in each year, the corresponding net profit attributable to shareholders of the parent company would be -RMB1.173bn/-RMB863mn/-RMB440mn, respectively. Earnings would therefore be revised down by 1,703%/315%/150.4%, respectively.

(2) Continued capacity expansion in industries such as aramid fiber and epoxy resin: If industry capacity continues to expand, supply will remain excessive and the recovery in industry conditions will be slower than expected.

(3) Macroeconomic fluctuations and a global economic downturn: The downstream sectors for chemical products are diverse and widely distributed, with a high correlation to macroeconomic conditions. An economic downturn may affect the company’s chemical materials marketing and other businesses.

(4) Slower-than-expected progress in consolidating Nantong Xingchen: If the acquisition progresses more slowly than expected, the company’s long-term growth prospects will be impaired.