Results Review

1Q26 results in line with our expectation Milkyway Chemical Supply Chain Service announced its 1Q26 results: Revenue rose 12.0% YoY to Rmb3,744mn, and attributable net profit grew 7.1% YoY to Rmb184mn. As the firm recorded about Rmb10mn of FX losses in 1Q26, we calculate that the firm's attributable net profit excluding FX gains and losses grew 11.7% YoY in 1Q26, in line with its earnings growth guidance (10–15%) and with our expectation.

Trends to watch

By business segment: 1) We believe the firm's distribution business maintained rapid growth in 1Q26, mainly due to rising chemical prices (e.g., the price of yellow phosphorus, the firm's core product, rose about 19% in 1Q26 based on Yunnan market data from oilchem.net) and the firm’s product category expansion. We think the growth of minority interest also indicated the healthy growth trend of the firm's distribution business (given that most core operators of the distribution business are the firm’s non-wholly owned subsidiaries).

2) We think the warehousing and delivery business segment recorded YoY revenue and gross profit growth driven by solid distribution business volume. We believe the transportation business benefited more notably, while the warehousing business was still in the capacity ramp-up stage after new warehouses were put into operation in 4Q25.

3) We believe performance of the freight forwarding business generally remained stable. Although container freight rates rose after the US-Iran conflict, we think the conflict had some negative impact on freight volume.

Effective expense control. The firm’s selling expense ratio fell 0.32ppt YoY to 0.81%, and G&A expense ratio fell 0.70ppt YoY to 1.61%. Optimization of expenses effectively supported the firm’s profitability, driving its net margin up 1.24ppt QoQ to 5.89%.

We are upbeat on the firm's sustainable growth potential. We expect earnings of its core integrated warehousing and delivery business to recover as the chemical industry's cyclical inflection point approaches, and the firm unleashes production capacity.

Financials and valuation

We keep our 2026 and 2027 earnings forecasts at Rmb0.71bn and Rmb0.81bn, implying YoY earnings growth of 13.5% and 13.9%. The stock is trading at 12.9x 2026e and 11.3x 2027e P/E. We maintain an OUTPERFORM rating and our target price of Rmb79.1, implying 17.6x 2026e P/E and 15.4x 2027e P/E, offering 36.6% upside.

Risks

Falling transportation and warehousing prices; weaker-thanexpected industry-wide business climate.