Action

The company is actively cultivating new growth drivers forits business.

1) Equity investments are gradually entering the harvestperiod. The company has made investments across multiplesegments of the semiconductor value chain, including ICdesign, wafer manufacturing, packaging and testing,materials, and equipment. We expect these investments togenerate gains in the future.

2) The core cement business still faces supply?demandpressure, but the company has exceeded expectations forcost reduction. Its comprehensive cost per tonne reachedRmb155 in 2025, placing it on the left side of the cost curve.

The company has ample cash and a decent dividend payoutratio.

Its free cash flow reached Rmb0.8bn in 2025, with a dividendpayout ratio above 70%. We are optimistic about the marginalimprovement in the company’s core cement business and thevaluation upside driven by its equity investment operations.

Reasoning

The bottom of the main business’ profit is likely in sight;the company serves as a cost-cutting benchmark for theindustry. We expect supply?demand pressure in the cementindustry to persist in 2026, but downside room is limited. In themedium term, as the industry tackles the supply-demandimbalance and implements carbon trading, capacity utilizationshould see a moderate recovery.

In recent years, the company has strengthened its use ofalternative fuels and other measures, reducing itscomprehensive cost per tonne of cement clinker to Rmb155 in　　2025. In addition, its main business generates solid cash flow.

From 2022 to 2025, the company’s net cash from operatingactivities remained stable at around Rmb1bn.

New-economy investments enter a harvest period in 2026;company gradually entering semiconductor value chain. Asof April 2026, over 60% of the company’s new-economyinvestment projects had entered exit channels, including IPOs,M&A, and buybacks. Core investment targets include OnMicro,ChangXin Memory Technologies, and others.

In March 2026, the company acquired a 75% stake in MeiqiCircuit, which provides Shangfeng with a solid foundation toenter the substrate industry. In 2025, the company’s neweconomyequity investments contributed a net profit ofRmb95mn. We are optimistic that the company’s investmentbusiness will continue to gain momentum and support itsprofitability.

Financials and valuation

We largely maintain our 2026 net profit forecast at Rmb900mn.

Given the marginal improvement in the competitive landscape ofthe main business, we raise our 2027 net profit forecast 19% toRmb1.1bn. The stock is trading at 18.5x 2026e and 15.4x 2027eP/E. We maintain our OUTPERFORM rating.

Considering that the growth potential of the company’s neweconomyequity investment business is likely to emerge andboost the company’s valuation, we raise the target price 43% toRmb20 based on the 2027 earnings, implying 22x 2026e and18x 2027e P/E, offering 16% upside.

Risks

Disappointing investment income; new-economy equityinvestment business may amplify earnings fluctuations; weakerthan-expected recovery of cement demand and/or pricerecovery in peak season.