Results Review

3Q26 results beat our expectations

Shangfeng Materials announced its 3Q26 results: Revenue was Rmb1.11bn (-16.0% YoY), net profit attributable to shareholders was Rmb1.95bn (+592.9% YoY), and recurring net profit was Rmb 0.62mn. The firm's results beat expectations, mainly due to substantial profit contribution from new-economy equity investments.

1) Main business: Sales volume remained stable but prices fell; gross margin came under pressure. The firm's sales volume of cement and clinker totaled 13.77mnt (-2.7% YoY) in 1–3Q26, and the ASP of cement and clinker fell 17.3% and 16.8% YoY, respectively. In 3Q26, blended gross margin fell 11.0ppt YoY and 11.2ppt QoQ to 15.5%. Aggregates maintained high gross margin, offsetting the decline in the profitability of the cement segment. In addition, the firm made Rmb32.1mn of provisions for impairment of real estate inventories in 3Q26, mainly for the clearance of remaining property projects as it exits the real estate business.

2) Technology layout has started to pay off; equity revaluation contributed incremental core profit. The firm's gains from fair value changes reached Rmb750mn and investment income was Rmb3.49bn in 1–3Q26, mainly due to fair value revaluation of industry fund targets such as CXMT Corporation.

Trends to watch

Supply-side transformation ahead; fundamentals of cement sector likely to improve. We observe that since late September, cement prices in southern China have continued to rise by around 15%. This round of price hikes in southern China differs from previous years: Overproduction regulation has been upgraded from industry self-disciplined staggered production to daily output verification. This, coupled with restricted transportation in the dry season of the Xijiang River, led to a decline of about 5ppt to 63% in the inventory-to-capacity ratio. The supply side is now subject to hard constraints rather than self-disciplined staggered production. In 2027, with the easing of coal price pressure and the continuation of supply-side regulation, we expect the cement sector's business fundamentals to improve.

Upbeat on new-economy equity investments as a new growth driver. We note that the firm has been ramping up new-economy equity investments since the beginning of 2026. In 1H26, the firm invested Rmb143mn in hard technology projects. In 3Q26, it set up Suzhou Puguang Venture Capital with a capital contribution of Rmb86.9mn, and invested Rmb8.5mn in Zhejiang Xinyue Digital Technology to expand its presence in semiconductor and new materials markets.

Companies in the firm’s industrial fund portfolio, including SJ Semiconductor, CXMT Corporation (listed on the SSE STAR Market in July), and CanSemi Technology (listed on the ChiNext Board in October), have gone public intensively. The profit contribution from new-economy investments has steadily increased, effectively offsetting the pressure on its core cement business. We expect new-economy investments to become the company's new growth engine.

Financials and valuation

Considering the concentrated realization of equity investments this year, we raise our 2026 attributable net profit forecast by 281% to Rmb3.43bn, but cut our 2027 attributable net profit forecasts by 10% to Rmb975mn as the cement business may be under pressure. Given the impact of equity investments on 2026 earnings, we roll over valuation to 2027. The stock is trading at 12.8x 2027e P/E. As the pressure on raw coal prices may ease, we maintain an OUTPERFORM rating and target price of Rmb20.0, implying 19.9x 2027e P/E and offering 56% upside.

Risks

Recovery in demand disappoints; changes in fair value of investments; impairment losses of projects.