Key takeaway

The company is a leading enterprise in high-performance resins. Its core businesses, including phenolic resin and foundry auxiliary materials, generate stable cash flow. Meanwhile, the company made an early move into CCL materials such as PPO/OPE resin and hydrocarbon resin, and is currently a core supplier to domestic CCL companies. In addition, the company recently issued convertible bonds. The fundraising investment projects focus on silicon-carbon anode materials and upstream porous carbon materials. Leveraging its integrated biomass refining technology, the company is building an integrated layout for silicon-carbon anodes, thereby entering the solid-state battery materials sector and further expanding its long-term growth potential.

Event

The company recently listed convertible bonds issued to unspecified investors. The bonds are abbreviated as SQ GROUPCB (111025.SH), with the listing date on July 21, 2026. Total funds raised amounted to RMB2.5bn, of which allotments to existing shareholders accounted for 77.42% of the total issuance. The fundraising investment projects for SQ GROUP-CB include the industrialization project for green new energy battery materials (planned use of RMB2bn in raised funds) and supplementary working capital (planned use of RMB500mn in raised funds).

Risks:

(1) Crude oil prices may rise or fall beyond expectations: Crude oil prices are highly correlated with the international political and economic environment and are subject to significant volatility. Sharp fluctuations in crude oil prices may affect the price spread and earnings stability of the company’s phenolic resin and foundry auxiliary materials businesses, thereby impacting profitability; (2) Construction of silicon-carbon anode and porous carbon projects and customer expansion may fall short of expectations: These products are part of the company’s convertible bond-funded investment projects. If subsequent capacity construction and customer expansion fail to meet expectations, the company’s earnings outlook may be affected; (3) Commercial launch of the hydrocarbon resin production line may fall short of expectations: The company is currently building 1,000 tonnes of hydrocarbon resin capacity, compared with only 100 tonnes previously. Delays in commissioning may affect the earnings forecasts for 2027-2028. (4) Profitability of the biomass charcoal project may fall short of expectations: The company’s biomass charcoal project is currently operating at a loss. If subsequent production line debugging falls short of expectations and downstream demand remains weak, the project ’s profitability may underperform expectations.