3Q25 results in line with our expectations

Milkyway Chemical Supply Chain Service announced its 3Q25 results: Revenue rose 2.1% YoY but fell 1.6% QoQ to Rmb3.64bn, and net profit attributable to shareholders fell 3.5% YoY and 3.7% QoQ YoY to Rmb173mn, in line with our and market expectations.

Trends to watch

Integrated warehousing and distribution businesses likely remained under pressure in 3Q25. The firm usually bids for next year's projects in 4Q. We think falling bidding prices for its warehousing and transportation businesses likely weighed on earnings in 1–3Q25. In 1H25, gross profit of the firm's warehousing and transportation businesses fell 6.9% and 13.8%, and the combined gross profit of the two businesses declined 9.2%. We think that integrated warehousing and distribution businesses likely remained under pressure in 3Q25.

Distribution business likely maintained rapid growth in 3Q25. Based on the firm's minority interest (up 60.9% YoY and 3.8% QoQ in 3Q25), we believe the distribution business maintained rapid growth (gross profit of distribution rose 50.5% YoY in 1H25, while some core distribution companies are nonwholly- owned subsidiaries of the firm).

Chemical industry to turn around in the near future, driving earnings of Milkyway's integrated warehousing and distribution businesses to recover. Since 2H22, the chemical industry has been in a down-cycle for about three years, and listed petrochemical companies' capex has been in negative growth for six quarters since 4Q23. Coupled with the “antiinvolution” policy in the industry, the CICC Research chemicals team believes industry cycle may turn around soon.

Although the area of self-owned hazardous chemical warehouses more than doubled in 2021–2024, gross profit of integrated warehousing and distribution businesses remained unchanged due to falling prices in the industry. We expect earnings of core businesses to recover as positive signals from the chemical industry increase.

Financials and valuation

We keep our 2025 and 2026 revenue forecasts unchanged at Rmb14.06bn and Rmb15.67bn, and our attributable net profit forecasts at Rmb642mn and Rmb736mn. The stock is trading at 14.6x and 12.7x 2025e and 2026e P/E. We maintain an OUTPERFORM rating and target price of Rmb79.14, implying 19.5x and 17.0x 2025e and 2026e P/E, offering 33.4% upside.

Risks

Industry transportation and warehousing prices continue to decline; goodwill impairment risks.