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Milkyway Chemical Supply Chain announced a 2026 equityincentive plan. The firm plans to grant 6.63mn stock options,representing 4.2% of total share capital, to 95 senior managersand core employees (2.4% of total headcount) with an exerciseprice of Rmb54.62. The shares will be issued in the form ofprivate placement and repurchased from the secondary market.

Comments

Earnings target: Attributable net profit should grow at aCAGR of 15% over 2026–2029. The equity incentive planrequires that the firm’s attributable net profit in 2026–2029 torise no less than 15%, 32%, 52%, and 75% compared to 2025.

This means attributable net profit over the period should grow15.0%, 14.8%, 15.2%, and 15.1% YoY to Rmb721mn,Rmb827mn, Rmb952mn, and Rmb1,096mn.

Given rising momentum of the chemical industry, and the firm’sexpanding business scope, we believe Milkyway has entered anew phase of development and expect steady growth ahead.

Buyback plan shows confidence in future growth. On May26, the firm announced that it plans to buy back Rmb80–120mnshares at no more than Rmb85.0/sh. On May 28, it conductedthe first repurchase of 160,000 shares for about Rmb8.50mn.

We believe the share buyback amid low share prices indicatemanagement’s confidence in the firm’s long-term growth.

Multiple potential catalysts.

REIT issuance: Milkyway plans to issue REITs with sixwarehouses as the underlying assets. We believe the REITissuance, if completed within 2026, will revitalize assets instock, and may generate one-off income after relevantassets are removed from consolidated financials.

Chemicals price hikes: Rising chemical prices may boostprofits at the firm’s chemical distribution business.

Specifically, as of June 8, ASP of yellow phosphorus—oneof the company’s major products—had rallied 22% inYunnan since the beginning of 2Q26, according tooilchem.net.

Broadening of business scope: Milkyway recruited newsales staff to serve clients from industries such assemiconductors for chips and new energy. We believe thefirm may replicate its business experience in chemicals toother industries, from which revenue contribution may risefurther.

Financials and valuation

We leave our earnings forecasts largely unchanged. After acorrection caused by weakening market sentiment, the stock isnow trading at 11.0x 2026e and 9.7x 2027e P/E, 1x standarddeviation lower than the three-year average. We believe thenew equity incentive plan may offer another boost to long-termgrowth. We maintain OUTPERFORM and TP of Rmb79.14,implying 17.6x 2026e and 15.4x 2027e P/E, offering 59.9%upside.

Risks

Continued decline in transport and warehouse prices; higherthan-expected FX losses.