Key takeaway

The company announced that it plans to acquire 100% equity of Huafeng Synthetic Resin and Huafeng Thermoplastic through a private placement and cash payment. According to the previously disclosed unaudited figures, Huafeng Synthetic Resin and Huafeng Thermoplastic recorded revenue of RMB6.302bn and net profit of RMB545mn in 2025, equivalent to 26.04% of the listed company's 2025 revenue of RMB24.198bn and 29.36% of its net profit attributable to shareholders of the parent company of RMB1.858bn. This transaction not only continues the fulfillment of the asset injection commitment left after Huafeng New Materials was injected into the listed company in 2019, but also reflects insiders’ recognition of the listed company’s medium- to long-term value. After the transaction is completed, HUAFENG SPANDEX will formally enter the two segments of polyurethane resin for synthetic leather and TPU, further improving its polyurethane industry chain presence and accelerating its move toward becoming a global integrated polyurethane leader.

Event

On June 6, the company disclosed the “Plan for issuing shares and paying cash to purchase assets and related-party transaction”. It plans to issue shares and pay cash to Huafeng Group, You Xiaoping, You Jinhui, and You Xiaohua to acquire 100% equity of Huafeng Synthetic Resin, and to issue shares and pay cash to Huafeng Group to acquire 100% equity of Huafeng Thermoplastic. The issue price for this transaction is RMB8.55/share, not lower than 80% of the average trading price of RMB10.68/share over the 20 trading days preceding the pricing benchmark date; the shares obtained by the counterparties shall not be transferred within 36 months from the completion of the issuance.

Quick Take

Asset injection both fulfills commitments and reflects recognition of the listed company’s value

When Huafeng Spandex acquired 100% equity of Huafeng New Materials in 2019, Huafeng Thermoplastic and Huafeng Synthetic Resin were already included in custodial management and future injection arrangements. In December 2024, the company extended the deadline for fulfilling the relevant commitment to December 2026. After the previous proposal was rejected in May 2025, the company still made it clear that it would continue to advance the injection of the two assets. At that time, the total transaction consideration was RMB6bn, of which share payment accounted for 90%. The restart of the transaction reflects both the continued fulfillment of historical M&A commitments by the controlling shareholder and actual controller, and insiders’ recognition of the listed company’s medium- to long-term value.

Polyurethane products presence continues to improve, injection of high-quality assets may boost performance

The core business of Huafeng Synthetic Resin is polyurethane resin for synthetic leather, while the core business of Huafeng Thermoplastic is thermoplastic polyurethane elastomer (TPU). After the transaction is completed, HUAFENG SPANDEX will officially enter the two sub-segments of polyurethane resin for synthetic leather and TPU, further improving its polyurethane industry chain presence, accelerating its move toward becoming a global integrated polyurethane leader, and potentially generating comprehensive synergies in supply chain integration, shared sales channels, collaborative technology R&D, and optimized production management.

Huafeng Synthetic Resin recorded unaudited revenue of RMB2.913bn and net profit of RMB326mn in 2025, while Huafeng Thermoplastic recorded unaudited revenue of RMB3.388bn and net profit of RMB219mn in 2025, with the two companies reporting combined net profit of RMB545mn. Compared with HUAFENG SPANDEX’s net profit attributable to shareholders of the parent company of RMB1.858bn in 2025, the combined net profit of the target assets equals 29.36% of the listed company’s net profit attributable to shareholders of the parent company in 2025. The target assets demonstrate relatively strong profitability and may significantly boost the listed company’s performance after consolidation.

Spandex and adipic acid businesses trend upward, earnings elasticity of the core business may be released

In 1Q26, the company recorded net profit attributable to shareholders of the parent company excluding non-recurring items of RMB732mn, up 59.16% YoY, indicating a recovery trend in the core business. As of June 6 in 2Q26, the average price of spandex 40D was RMB29,000/ton, up 16.54% from the 1Q26 average of RMB24,884.62/ton and up 19.38% from the 2Q25 average of RMB24,292.31/ton; the average price of adipic acid was RMB9,250/ton, up 9.42% from the 1Q26 average of RMB8,453.85/ton and up 28.40% from the 2Q25 average of RMB7,203.85/ton. Both QoQ and YoY improvements in the average prices of spandex and adipic acid may enhance the profit elasticity of the company’s core business.

Capacity expansion and high-end positioning advance simultaneously, with clear medium- to long-term growth drivers

At the beginning of 2026, the company announced an investment to build an expansion project for 200,000 tons per year of high-performance, low-carbon, digitalized spandex new materials, and in the first quarter it also planned an additional expansion project in Chongqing for 50,000 tons per year of high-quality, high-performance differentiated spandex. The former helps further consolidate the company’s scale advantage in spandex, while the latter emphasizes increasing the share of differentiated products and extending toward higher value-added segments. Overall, the company continues to strengthen its industry-leading position through capacity expansion, efficiency improvement, and high-end positioning, and if the recovery in spandex and adipic acid continues while new projects are implemented smoothly, the company’s performance is expected to enter a sustained recovery trajectory.

Earnings forecast and investment rating: The company’s three major businesses—spandex, adipic acid, and shoe-sole solution—have strong scale and cost advantages, and once industry conditions recover, the company’ s profit elasticity is expected to be released ahead of peers. With spandex capacity expansion, differentiation upgrades, and marginal improvement in adipic acid industry conditions, the company still has room to lift its overall earnings center, and we maintain a “Buy” rating.

Risks

1) Downstream demand recovery below expectations: If the recovery in downstream sectors such as textiles, automobiles, and footwear materials falls short of expectations, the improvement in both volume and price for spandex and shoe-sole solution may slow, making it difficult for the recovery momentum in the first quarter to continue.

2) Raw material and exchange rate fluctuation risk: Rising prices of key raw materials such as MDI and PTMG, or amplified exchange losses caused by fluctuations in the RMB exchange rate and financial markets, may directly erode gross margin and net profit elasticity, weakening expectations that operating recovery will outpace net profit release.

3) Project progress and commissioning verification risk: If the 200kt spandex expansion project and the 50kt high-end spandex project in Chongqing fall behind schedule in construction, acceptance, commissioning, or ramp-up, the incremental contribution from scale advantages and the differentiation roadmap will be delayed, reducing the certainty of mid-term earnings improvement.

4) Risk of insufficient realization of business synergies: If the synergies among spandex, adipic acid, and shoe-sole solution fail to be effectively integrated as expected in procurement, inventory, capacity scheduling, and channel coordination, mismatches may arise between cash flow collection and expense -side investment, leading to short-term profit recovery that is “visible in numbers but volatile” and lacking stability.

5) Risk that M&A and integration progress fall short of expectations: If the private placement-funded acquisition is rejected, postponed, or suspended during regulatory approval, independent director review, shareholder meeting voting, or negotiations with counterparties, or if even after approval the progress of closing, capacity integration, and operational integration falls short of expectations, the release of synergies will be significantly delayed, the pace of capex returns will be compressed, and additional integration costs may rise, thereby undermining the pace and extent of the medium-term earnings recovery.