Key takeaway

In 1H26, the company recorded revenue of RMB6.988bn, down 12.20% YoY, net profit attributable to shareholders of the parent company of RMB842mn, up 69.89% YoY, and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses of RMB730mn, up 62.57% YoY. Profitability improved significantly despite pressure on revenue. Gross margin was 17.1% in 1H26, up 4.9pcts YoY. Based on calculations using the interim report and the first-quarter report, net profit attributable to shareholders of the parent company was approximately RMB530mn in 2Q26, showing further QoQ improvement. The recovery in photovoltaic encapsulant film profitability was a key driver of earnings growth. In 1H26, encapsulant film generated revenue of RMB6.133bn with a gross margin of 17.0%. The company's overseas footprint and differentiated encapsulation products are expected to continue supporting earnings resilience. Electronic materials benefited from the shift toward high-end AI server PCBs and domestic substitution. In 1H26, photosensitive dry film generated revenue of RMB389mn with a gross margin of 29.1%. Progress in mid- to high-end products, including packaging substrates and advanced HDI products, is expected to drive continued product mix upgrades. Overall, while profitability in the company's core photovoltaic business is recovering, electronic materials and lithium battery materials are gradually beginning to contribute profits. The company's multi-material platform capabilities continue to strengthen.

Event

The company released its 1H26 results. In 1H26, the company recorded operating revenue of RMB6.988bn, down 12.20% YoY, and net profit attributable to shareholders of the parent company of RMB842mn, up 69.89% YoY. In 2Q26, the company recorded operating revenue of RMB3.615bn, down 16.59% YoY and up 7.20% QoQ. Net profit attributable to shareholders of the parent company was RMB530mn, up 460.54% YoY and 70.12% QoQ.

Risks:

1. Intensified industry competition. The encapsulant film segment requires relatively low capital expenditure and allows rapid capacity expansion. The rapid increase in both incumbents and new entrants has resulted in substantial industry capacity, which may intensify competition;

2. Rising raw material costs. The key raw materials for encapsulant film are EVA/POE resins, both of which have capacity expansion cycles of three to four years. If EVA and POE particle supply and demand become temporarily mismatched, raw material costs may fluctuate significantly;

3. PV end user demand is weaker than expected. Our forecast for the company's shipment volumes is based on anticipated growth of around 10%-20% in PV industry demand over the next few years. If PV industry demand falls short of expectations, the company's encapsulant film shipment volumes may also be lower than our forecasts.