Key takeaway

1. In 3Q26, the company achieved operating revenue of RMB590mn, up 38.86% YoY and 23.26% QoQ, with net profit attributable to the parent company of RMB124mn, up 97.78% YoY and 51.37% QoQ, bringing single-quarter profit close to doubling. The company's high profit growth stems from simultaneous increases in both volume and price of zirconium products and specialty nylon products: in the first three quarters, the company's GPM was 31.88%, up 7.50 pcts YoY, while the 3Q GPM was approximately 34.8%, up another approximately 3.7 pcts QoQ, indicating steadily rising profitability quarter by quarter. In 3Q alone, the company's total zirconium oxychloride production capacity was increased from 75,000 tonnes to 120,000 tonnes. 4Q marks the first full quarter of operation at full capacity. With the volume and price ramp-up, earnings elasticity is expected to continue. In terms of nano zirconia, benefiting from restricted overseas supply of yttrium oxide, Changyu Group, through its joint venture in Shandong with Daiichi Kigenso Kagaku Kogyo(DKKK), directly undertook the high-quality nano zirconia orders transferred from the latter.

Event

The company released its 3Q26 earnings results. The company released its 3Q26 earnings results. In the first three quarters of 2026, the company achieved operating revenue of RMB1.453bn, up 9.95% YoY; net profit attributable to the parent company of RMB262mn, up 49.18% YoY; net profit attributable to the parent company after deducting non-recurring gains and losses of RMB257mn, up 48.23% YoY; and basic earnings per share of RMB 0.68, up 41.67% YoY. 3Q26 alone achieved operating revenue of RMB590mn, up 38.86% YoY and 23.26% QoQ; net profit attributable to the parent company of RMB124mn, up 97.78% YoY and 51.37% QoQ; and net profit attributable to the parent company after deducting non-recurring gains and losses of RMB122mn, up 96.74% YoY.

Quick Take

High profit growth: product mix optimization combined with simultaneous volume and price increases drove significant margin improvement. In the first three quarters of 2026, the company's operating revenue was RMB1.453bn, up 9.95% YoY, and net profit attributable to the parent company was RMB262mn, up 49.18% YoY. The scissors gap between revenue and profit growth further widened, mainly due to a substantial increase in GPM: the GPM for the first three quarters was 31.88%, up 7.50 pcts YoY; the NPM was 18.46%, and the net margin attributable to the parent company was 18.02%, up 4.74 pcts YoY. The profit improvement also benefited from rising prices of zirconium-based products such as zirconium oxychloride: since 2026, the price of newly signed zirconium oxychloride orders has exceeded RMB 20,000/tonne. Coupled with the company's zircon sand inventory purchased in advance, the cost advantages in Shandong liquid caustic soda raw materials and the group's cement plant in digesting silicon slag, earnings elasticity continued to amplify.

3Q profit improvement accelerated QoQ, with a clear trend of volume and price ramp-up. In 3Q26, the company achieved operating revenue of RMB590mn, up 23.26% QoQ, and net profit attributable to the parent company of RMB124mn, up 51.37% QoQ. Profit growth was significantly faster than that of revenue, reflecting the dual drivers of volume increase and price rise. The 3Q GPM was approximately 34.8%, up 3.7 pcts QoQ and up approximately 10 pcts from the 24.38% level in the first three quarters of 2025; the 3Q NPM attributable to the parent company was 21.02%, up 3.9 pcts QoQ, indicating steadily rising profitability quarter by quarter. Considering that the delivery period for newly signed zirconium oxychloride orders has been scheduled through the end of 2026 or even early 2027, the positive impact of price increases on performance is expected to be more fully reflected in 4Q26 and 2027.

Volume and price ramp-up in zirconium oxychloride, combined with the transfer of high-end nano zirconia orders, driving a synchronized upcycle across both industry chains. The explosive growth in emerging segments has driven strong demand for zirconium oxychloride. It is estimated that in 2027 alone, the incremental demand from the zirconium-hafnium separation sector will bring about 20,000-40,000 tonnes of zirconium oxychloride demand. In terms of nano zirconia, due to restricted supply of yttrium oxide, the zirconium product supply chains of relevant Japanese enterprises are tightening. After overseas capacity contraction, market supply has decreased, causing high-end nano zirconia orders previously dominated by Japan to accelerate their shift to China. Changyu Group, through its joint venture in Shandong with DKKK, directly undertook the high-quality nano zirconia orders transferred from the latter. The company's products are in short supply. The expansion of the balance sheet also corroborates this view: the company's construction in progress increased from RMB11mn at the beginning of the year to RMB161mn, and fixed assets increased from RMB319mn to RMB457mn. The 45,000-tonne zirconium oxychloride capacity expansion project reached full production on schedule.

Investment recommendation: The company’s net profit attributable to the parent company is estimated at RMB405mn, RMB919mn, and RMB1.958bn for 2026-2028, implying PE multiples of 48.64x, 21.44x, and 10.06x at the current share price, respectively. Considering the company’s industry position, growth potential, and low-cost advantage, we assign it a“Buy” rating.

Risks:

(1) Risk of significant fluctuations in zircon sand prices. Global zircon resources are highly concentrated geographically. Australia, South Africa, and Mozambique together account for more than 90% of global reserves. This highly concentrated supply pattern makes zircon sand prices susceptible to sharp fluctuations due to factors such as geopolitics, mining operation accidents, and changes in export policies. If supply disruptions occur in major producing regions or major suppliers jointly cut production to support prices, zircon sand prices may surge sharply, squeezing the profit margins of midstream processing enterprises.

(2) Risk that domestic substitution of high-end products progresses slower than expected. Although Chinese manufacturers are expected to achieve import substitution in the high-end nano zirconia field, this process faces dual barriers in technology and customer certification. High-end application fields impose extremely stringent requirements on material purity, particle size distribution, and batch stability. Although Chinese manufacturers have advantages in production capacity scale, gaps remain in the performance stability and brand recognition of high-end products. Customers’ willingness and pace to switch suppliers may fall short of expectations, slowing the progress of domestic substitution.

(3) Risk that SOFC market promotion falls short of expectations. Although the SOFC industry benefits from the surge in electricity demand from AI data centers, the initial investment cost of SOFC systems is relatively high. While long-term operating costs have advantages, the high upfront capital expenditure may suppress downstream customers’ purchasing willingness and indirectly affect the demand growth for YSZ materials.