Key takeaway

The company released its 2026 semiannual earnings forecast. Despite the drag from a planned RMB200mn donation, the company expects substantial YoY growth in 1H26 earnings, exceeding market expectations. We believe this was mainly driven by the upcycle in the spandex industry, with significant improvements in prices and gross margin. Meanwhile, the 250kt differentiated spandex project in Chongqing officially reached full production capacity in June, driving simultaneous growth in both sales volume and pricing for the core spandex business. In addition, adipic acid product prices and profitability also improved. The company is currently steadily advancing the 200kt low-carbon spandex project and the Chongqing 50kt high-end spandex project. These projects are expected to further strengthen the company’s scale advantage in its core spandex business and expand profitability, with a clear medium- to long-term growth trajectory.

Event

On July 2, the company disclosed its “2026 Semiannual Earnings Forecast,” estimating net profit attributable to shareholders of the parent company at RMB1.68bn-RMB2.08bn in 1H26, up 70.85%-111.53% YoY. Net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses is expected at RMB1.655bn-RMB2.055bn, up 82.98%-127.20% YoY. Basic EPS is expected at RMB0.34-RMB0.42 per share. During the reporting period, the company completed a RMB200mn donation to the Zhejiang Ruian High School Education Development Foundation.

Quick Take

Semiannual earnings significantly exceeded expectations, with sharp QoQ growth in 2Q26

The company expects substantial YoY growth in net profit attributable to shareholders of the parent company in 1H26. On a quarterly basis, net profit attributable to shareholders of the parent company in 2Q26 is expected at RMB1.011bn-RMB1.411bn, up 51.12%-110.91% QoQ from RMB669mn in 1Q26. Net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses in 2Q26 is expected at RMB923mn-RMB1.323bn, up 26.09%-80.74% QoQ from RMB732mn in 1Q26. The substantial earnings growth was mainly driven by rising raw material prices and demand recovery, which lifted product prices and improved gross margin for related products. In addition, the company continued to optimize operational management, and the benefits from the spandex fundraising investment projects were gradually released. The company completed a RMB200mn charitable donation in 1H26, which temporarily weighed on current-period profit. However, the donation was a planned charitable expenditure and was not included in non-recurring gains and losses. Excluding this factor, the actual profitability of the core business was even stronger.

The spandex business enters an upcycle, while adipic acid profitability improves

The average price of 40D spandex reached RMB29,200/ton in 2Q26, up 17.34% QoQ and 20.20% YoY versus 2Q25; the average price of adipic acid was RMB8,866.67/ton, up 4.88% QoQ and 22.84% YoY versus 2Q25. Spandex prices remained strong in 2Q, as industry capital expenditure on the supply side slowed over the past two years, with new capacity concentrated among leading enterprises and industry concentration continuing to rise, while little new capacity is expected over the next two years. Meanwhile, industry demand remains relatively robust, with differentiated demand in sportswear and casual apparel continuing to grow, and spandex operating rates improving significantly from the same period last year, while supply-demand optimization is expected to support further price increases. Although adipic acid prices pulled back in late June, the quarterly average price still achieved both QoQ and YoY growth, while improved supply and demand supported a higher profitability center, and the company, as a dual leader in spandex and adipic acid, is expected to fully benefit from the industry upcycle due to its outstanding scale advantages.

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

On June 5, the company disclosed a restructuring proposal, planning to issue shares at RMB8.55/share and pay cash to acquire 100% equity interests in Huafeng Synthetic Resin and Huafeng Thermoplastics, while the shares obtained by counterparties will be subject to a 36-month lock-up period. 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). Following the completion of the transaction, the company will e nter the two niche segments of polyurethane resin for synthetic leather and TPU, improve its full polyurethane industry chain presence, form synergies across supply chain, channels, R&D and production, and accelerate its move toward becoming a global integrated polyurethane leader. The two target companies are expected to record combined net profit of RMB545mn in 2025, accounting for 29.36% of the listed company's 2025 net profit attributable to shareholders of the parent company, and the consolidation is expected to significantly enhance earnings.

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

On June 9, the company announced that the 250kt differentiated spandex project in Chongqing has be en fully completed and reached full production capacity, while the remaining 150kt capacity, after commencing operations in November 2025, has achieved stable production, further consolidating the company's scale advantage in spandex. Regarding new projects, the 200kt high-performance low-carbon digitalized spandex project announced earlier this year will be constructed in two phases, with phase I comprising 100kt and a construction period of 36 months, and phase II having a construction period of 24 months; the 50kt high-end differentiated spandex project in Chongqing planned in 1Q is currently in the preliminary planning and administrative approval stage, with a construction period of no more than 21 months, focusing on increasing the proportion of differentiated products and expanding into high value-added segments. Overall, the company continues to strengthen its leading position through capacity expansion, efficiency improvement, and premiumization. If favorable conditions in the spandex and adipic acid markets continue, coupled with the smooth implementation of new projects, earnings are 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. We expect the company to achieve net profit of RMB2.9bn/RMB3.6bn/RMB4.2bn in 2026-2028. As spandex capacity expansion, differentiated upgrades, and marginal improvement in the adipic acid market continue, there remains room for the company’s overall earnings base to improve. We maintain the “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.