Results Review

2025 and 1Q26 results missed our expectations Huawang New Material Technology announced its 2025 and 1Q26 results: In 2025, revenue was Rmb3.2bn, down 15.03% YoY. Attributable net profit fell 42.22% YoY to Rmb271mn. In 1Q26, attributable net profit fell 19.35% YoY and rose 1% QoQ to Rmb65mn, missing our expectations, mainly due to weak industry demand and falling product prices.

Output and sales volume stable YoY: Sales volume rose 0.23% YoY to about 0.32mn in 2025, with output and sales volume growth slowing compared with previous years due to weak market demand and suspension of new capacity expansion. We estimate the firm's production and sales volume at around 0.08mnt in 1Q26, with sales volume improving QoQ in the slack season.

Prices under pressure: We estimate that the firm's ASP per tonne of paper fell Rmb1,080/t YoY to Rmb7,964/t in 2025, mainly due to intensified competition. In 2025, export revenue was Rmb762mn (accounting for 23.8% of total revenue), down 3.2% YoY, and gross margin of the export business was 21.2% (-1.7ppt YoY), much higher than the gross margin of 10.6% for domestic sales (-3.3ppt YoY).

Net profit per tonne improved QoQ in 1Q26: We estimate net profit per tonne of paper fell 39.55% YoY (or -Rmb540/t) to Rmb826/t in 2025. In 1Q26, the firm made Rmb15.48mn in provisions for credit impairment losses. Excluding this factor, we estimate that net profit per tonne of paper returned to over Rmb1,000/t, improving QoQ.

Solid financial structure and high dividend payout ratio: In 2025, operating cash flow rose 12.8% YoY to Rmb582mn. Capex was -Rmb86mn. Gearing ratio was 35.5% at end-2025, and full-year dividend payout ratio reached 90%. In 1Q26, the firm's net operating cash flow was -Rmb118mn and its capex was Rmb0.01bn.

Trends to watch

Profit per tonne to continue improving in 3Q26 driven by rising sales volume in 2Q26. The firm's export business has been strong since the beginning of 2026, with output and sales volume recovering YoY. In 1Q26, production and sales volume were at full-year lows due to the Chinese New Year (CNY) holiday and slack season. In 2Q26, we expect output and sales to rise slightly QoQ. But we think profit per tonne will likely remain little changed QoQ in 2Q26 due to rising cost per tonne. In early April, the industry started price hikes of Rmb200–500/t. We expect most of the price increases to materialize in 3Q26, given that the industry's order cycle is 1.5–2 months. We are upbeat on the increase in profit per tonne in 3Q26.

Financials and valuation

Given the low base effect for prices in 2025, we lower our 2026 earnings forecast 33% to Rmb306mn and introduce our 2027 earnings forecast at Rmb324mn. The stock is trading at 17.9x 2026e and 16.9x 2027e P/E. We maintain an OUTPERFORM rating and decrease our target price 7.7% to Rmb12, implying 21.8x and 20.7x 2026e and 2027e P/E, offering 22% upside, as the firm's profit per tonne is improving quarter by quarter.

Risks

Weaker-than-expected demand; higher-than-expected new supply; sharper-than-expected fluctuations in pulp price