Preannounced earnings up 81-124% in 1H25

Sinoma Science & Technology preannounced its 1H25 results, estimating that its earnings grew 81-124% YoY to Rmb0.84-1.04bn and recurring net profit increased 186-254% YoY to Rmb0.67-0.83bn. In 2Q25, the firm estimates its median earnings and recurring net profit at Rmb0.58bn and Rmb0.5bn, implying notable QoQ growth. Its earnings slightly beat our expectations, mainly due to two factors.

First, the net profit per tonne for roving beat market expectations driven by price hikes for some fiberglass categories. Second, high wind power shipments in 2Q25 resulted in relatively low expense ratios and improved profit margins. In 2Q25, the firm's earnings from special fiberglass fabric as a percentage of total earnings increased QoQ.

Trends to watch

The firm expects earnings from traditional fiberglass and wind turbine blade businesses to have marginally improved.

Fiberglass: Its main products - wind yarn and thermoplastic materials - underwent price hikes of at least 10% in 1Q25, and the growth in prices was sustained in 2Q25. As a result, its net profit per tonne of fiberglass increased. Wind turbine blades: In our view, as newly installed wind turbine capacity rebounded, the firm’s shipments improved marginally. Given the growth in product prices and relatively low expense ratios, we think the earnings growth rate of the wind turbine blade business in 2Q25 was higher than we had forecast.

Sinoma Science & Technology is a comprehensive supplier of special fiberglass fabric; it continues to meet evolving computing power demand. Low-dielectric products are mainly used by high-speed switches and AI servers, as they help effectively reduce electromagnetic interference and energy losses during signal transmission. As requirements for computing power increase, the pace of innovation for materials (including fiberglass fabric and copper foil) has accelerated. Sinoma Science & Technology can produce a wide range of fiberglass products and has strong competitiveness. It has announced an investment of Rmb1.4bn in a new special fiberglass project with capacity of 35mn　　meters in the medium term1. This new production line will produce high- value-added products.

The firm’s 2025 strategy for the LiB separator business prioritizes shipments. With a 51% stake in Sinoma Lithium Battery Separator, Sinoma Science & Technology is focusing on enhancing shipments in 2025. Prices of its lithium-ion battery (LiB) separator products remain under pressure due to pressure on supply and demand in the industry. However, the firm will likely mitigate the impact through cost reduction. In our view, as its sales increase, its fixed costs will likely be diluted. In addition, thanks to its close ties with core clients, the firm does not need to frequently change production lines, and it can therefore secure stable yield rates. The firm has gained government subsidies, which may also help ease the pressure on attributable net profit.

Financials and valuation

Given that the firm’s shipments of special fiberglass fabric will likely improve and the proportion of high-value production in the product portfolio is increasing, we raise our 2025 and 2026 EPS forecasts 19% and 20% to Rmb1.14 and Rmb1.38. The stock is trading at 21x 2025e and 17x 2026e P/E. We maintain an OUTPERFORM rating and roll over our valuation to 2026 due to three factors.

First, profit growth of the firm's special fiberglass fabric (materials applied to the AI industry) may accelerate in 2026. Therefore, a valuation shift to 2026 better aligns with the firm’s medium-term development strategy. Second, the proportion of the firm’s high-end fiberglass fabric may continue to rise if major downstream clients in the AI industry shift technology roadmaps, resulting in valuation premiums. Third, the firm’s strengths as an integrated special fabric supplier are increasing, which may also boost valuation premiums. We raise our TP 55% to Rmb27.4, implying 24x 2025e and 20x 2026e P/E and offering 15% upside.

Risks

Disappointing shipments of and earnings from special fiberglass fabric; additional tariffs and anti-dumping duties on fiberglass products in overseas markets; weaker-than-expected recovery in demand for traditional fiberglass products; lower-than-expected earnings from LiB separators.