Action

Sinoma Science & Technology is positioned as a new material platform under CNBM, and we believe the firm’s earnings roughly bottomed out in 2024. In 1Q25, the firm’s revenue rose 24% YoY to Rmb5.5bn and its net profit attributable to shareholders grew 67% YoY to Rmb0.36bn. Net profit per tonne of the firm’s fiberglass business is recovering thanks to price hikes of high-end products (products for wind power and thermoplastic products).

For the wind turbine blade business, we expect the installation volume of the firm’s products to increase, its product prices to rise, and costs to be spread. We expect these two main businesses of the firm to bottom out and stabilize in 2025. In addition, we think low-dielectric constant (low-Dk) products will create new growth drivers for the firm. As an industry-wide front-runner in R&D and technologies for such products, we expect the firm’s earnings from this business to grow faster than expected, driven by demand for AI servers.

Reasoning

AI servers to generate demand for the firm’s low-Dk products; the firm’s shipments of such products to grow steadily. The firm’s low-Dk

products are typically used in high-speed network switches and AI servers, and such products could effectively reduce electromagnetic interference and energy losses during signal transmission, thus improving the speed and quality of signal transmission. Based on estimates of TrendForce, global shipments of AI servers totaled about 1.183mn units in 2023 and are likely to grow at a CAGR of more than 25% over 2023-2026, which could generate demand for low-Dk electronic fiberglass fabrics.

Sinoma Science & Technology’s wholly-owned subsidiary Taishan Fiberglass has long established technological expertise in low-Dk products, and we estimate its average monthly shipments of low-Dk electronic fiberglass fabrics could be 2mn meters in 2025 thanks to its efforts to improve yield rate of products. In the medium term, Sinoma Science & Technology has announced plans to invest Rmb1.4bn in a specialized fiberglass fabrics project with annual production capacity at　　35mn meters1, and the firm’s new production facilities are capable of producing high-value-added products (e.g., second-generation electronic fiberglass fabrics and low-thermal-expansion-coefficient yarns).

Fiberglass and wind turbine blade businesses to bottom out; earnings to improve marginally.

Fiberglass: In early 2025, leading companies raised prices of wind power fiberglass yarn products and thermoplastic products by at least 10%. We estimate net profit per tonne of the firm’s fiberglass business recovered by about Rmb300/t QoQ in 1Q25.

Wind turbine blades: For this business segment, we expect the installation volume of the firm’s products to increase, its product prices to rise, and costs to be spread. We think the earnings of the wind turbine blade business segment will recover marginally in 2025.

LiB separators: Prioritizing product shipments in 2025; impact on overall earnings to be manageable given government subsidies and the firm’s 51% stake in LiB separator subsidiary. In terms of strategy

for this business segment, the firm prioritizes growth in product shipments in 2025. We believe that growing sales could help the firm spread fixed costs and its efforts to strengthen ties with key clients could ensure stable product yield rates, boding well for the firm to control per-unit costs. We assume that government subsidies received by the firm will increase slightly YoY in 2025.

However, product prices in the lithium-ion battery (LiB) separator industry may remain under pressure, and we assume that the LiB separator business will suffer a slight per-sqm loss in the base-case scenario (subsidies included). As Sinoma Science & Technology holds a 51% stake in Sinoma Lithium Battery Separator, we think the overall impact on earnings of Sinoma Science & Technology’s main businesses will be manageable.

Financials and valuation

As the firm’s shipments of low-Dk products may improve and its high- value-added products may boost its profit margin, we raise our 2025 and 2026 EPS forecasts by 6% and 6% to Rmb0.96 and Rmb1.15. The stock is trading at 15x 2025e and 12x 2026e P/E. We maintain an OUTPERFORM rating and our target price of Rmb17.7, implying 18x 2025e and 15x 2026e P/E, offering 26% upside.

Risks

Additional overseas tariffs and anti-dumping duties on fiberglass products; disappointing recovery in demand for fiberglass products; lower-than- expected earnings of LiB separator products; overly rapid production of low-Dk electronic fiberglass fabrics weighs on product prices.