1H25 results slightly beating our expectations

The firm announced its 1H25 results: Revenue rose 26% YoY to Rmb13.33bn, attributable net profit grew 115% YoY to Rmb1.00bn, and recurring attributable net profit grew 245% YoY to around Rmb810mn, with non-recurring gains mainly contributed by government subsidies. In 2Q25, revenue rose 28.1% YoY to Rmb7.83bn, and attributable net profit grew 156.2% YoY to Rmb637mn, slightly beating our expectations and close to the upper end of the preannouncement, mainly due to 1) higher-than- expected earnings from coarse sand and wind power and 2) rising earnings contribution from special fiberglass fabrics.

Trends to watch

Earnings of glass fiber and products improve YoY; high-end products boost structural optimization. In 1H25, revenue from glass fiber and products rose 12.9% YoY to Rmb4.35bn, mainly due to price hikes of wind-power yarn and thermoplastic products (ASP of these products rose 14% YoY in 1H25). In 1H25, sales volume of glass fiber stayed largely flat YoY at 673kt, and GM rose 10.7ppt YoY to 26%. The net profit of subsidiary Taishan Fiberglass totaled Rmb0.56bn, with a net margin of 13%. The firm's net profit per tonne of fiberglass and products rose Rmb594 YoY to Rmb832, which we attribute to product mix optimization.

As a comprehensive supplier of special fiberglass fabric, the company has a complete product portfolio of low-k fiberglass fabrics, which have been certified by customers and are supplied in large quantities. In 1H25, the company's sales volume of special fabrics reached 8.95mn meters.

The wind power industry continues to grow, and the net margin of blades has improved notably. In 1H25, revenue from blades rose 83.7% YoY to Rmb5.20bn, and sales volume rose 103% YoY to 15.3GW, mainly thanks to the steady increase in installed capacity in the wind power industry. GM rose 0.8ppt YoY and 3.9ppt HoH to 16%, as cost reduction measures paid off, bolstering earnings improvement. Based on the operating data of subsidiary Sinoma Wind Power Blade, we calculate that the firm's blade ASP was Rmb0.34/W, and unit net profit was Rmb0.02/W in 1H25, implying a net margin of nearly 7%, suggesting improvement.

Lithium film shipments rising steadily; falling demand weighs on earnings. In 1H25, revenue from lithium film rose 21.8% YoY to　　Rmb0.93bn, and sales volume grew 60% YoY to 1.3bn sqm. The firm adhered to its business strategy of prioritizing shipments, and revenue from this segment has been relatively resilient. However, earnings were under pressure amid falling demand, but were in line with our expectations. We estimate that the YoY growth of attributable net profit per sqm ranged from -Rmb0.15 to Rmb0.01 (including subsidies).

Operating cash flow has improved significantly; capex is controllable. In 1H25, net operating cash flow reached Rmb1.99bn (vs. -Rmb21mn in 1H24); capex fell 53.1% YoY to Rmb1.5bn, easing pressure on free cash flow. In addition, the firm's inventory turnover days fell 17.2 days YoY to 72 days, and its days sales outstanding fell 29 days YoY to 100 days, implying improved operations.

Financials and valuation

We maintain our 2025 EPS forecast of Rmb1.14, and raise our 2026 EPS forecast 18.7% to Rmb1.64 as high-end products such as quartz cloth may ramp up in 2026. The stock is trading at 31x 2025e and 22x 2026e P/E. We maintain an OUTPERFORM rating. Given the valuation support from high-end products, we raise our TP 41% to Rmb38.7 (33.8x 2025e and 23.7x 2026e P/E), offering 10% upside.

Risks

Disappointing shipments and earnings of special fiberglass fabrics; additional tariffs and anti-dumping duties on fiberglass overseas; disappointing demand recovery for traditional fiberglass; disappointing earnings for lithium film.