Key takeaway

In 2025, EASTERN SHENGHONG's refining business turned profitable YoY, while revenue and profit in the chemical fiber and new materials segments declined under pressure. The company's earnings became more concentrated in the refining segment. Overall gross margin improved YoY, and profitability showed some recovery. In the first quarter of 2026, supported by a differentiated product portfolio, the company maintained a balance between production and sales. Benefiting from favorable raw material and product prices, revenue grew and profit recovered substantially, with gross margin improving notably both YoY and QoQ. On the industry side, China is strictly controlling new refining capacity and promoting industrial upgrading. Coupled with the continued exit of refining capacity from Europe, Japan, and South Korea, the industry has reached a cyclical inflection point. The US-Iran situation has highlighted the vulnerability of overseas petrochemical supply chains. China's diversified crude procurement and outstanding supply chain stability position the company, as a high-quality private largescale refiner, to fully benefit from industry tailwinds, presenting a revaluation opportunity for its large petrochemical assets.

Event

EASTERN SHENGHONG released its 2025 annual report. Fullyear revenue reached RMB125.59bn, down 8.8% YoY, and net profit attributable to shareholders of the parent company was RMB130mn, turning profitable YoY. In 4Q, revenue reached RMB33.43bn, up 13.8% YoY and 7.0% QoQ, and net profit attributable to shareholders of the parent company was RMB10mn, turning profitable both YoY and QoQ. EASTERN SHENGHONG released its 1Q26 report. Revenue reached RMB32.02bn, up 5.7% YoY, and net profit attributable to shareholders of the parent company was RMB1.43bn, up 319.9% YoY.

Risks:

I. Crude oil price volatility and cost pass-through risk

As a leading integrated refining and chemical company, crude oil accounts for a high proportion of its production costs, and prices are subject to severe fluctuations driven by geopolitical factors (such as disruptions to shipping in the Strait of Hormuz) and OPEC+ production cuts. If oil prices continue to rise and downstream product price pass-through lags, gross margins in the refining and polyester segments will be directly squeezed; if oil prices fall sharply, inventory impairment risks will increase. At the same time, linked price fluctuations in industry chain feedstocks such as PX and PTA, coupled with changes in downstream textile and photovoltaic demand elasticity, may narrow product spreads and put pressure on earnings stability.

II. Environmental protection and production safety risk

Under the dual carbon targets, environmental protection, energy consumption and carbon emission controls in the petrochemical industry continue to tighten. The company needs to increase investment in environmental facilities, leading to rising compliance costs. Production involves flammable and explosive hazardous materials such as crude oil and ethylene, requiring high continuous operational reliabi lity. Any safety incident or environmental violation could result in production suspension for rectification, substantial fines or even license revocation, affecting business continuity and brand reputation. The implementation of new pollutant control policies may further increase emission reduction pressure.

III. Industry cycle and demand fluctuation risks

The refining and polyester industries are highly cyclical, significantly influenced by the global economy and enduser demand. Weak demand in the textile and apparel industry may lead to price declines for products such as polyester and bottle-grade chips. Shifts in the expansion pace of the photovoltaic industry could affect EVA resin demand, and worsening overcapacity may trigger price wars. Meanwhile, the domestic refining overcapacity persists, and intensifying industry competition may compress processing margins.

IV. Project construction and policy compliance risks

If progress on high-end chemical projects under construction is delayed due to approval, funding, or technical issues, the release of new production capacity and earnings growth will be impacted. Industrial policy adjustments, such as refining capacity controls and new energy subsidy phase-outs, may affect project profitability expectations. Escalating international trade frictions and rising technical barriers in European and American markets may affect product exports. Furthermore, lagging technological iteration may place the company at a competitive disadvantage in the high-end new materials sector.