Key takeaway

1. The company releases its 9M26 performance forecast: net profit attributable to shareholders of the parent company is expected to reach RMB140mn–180mn, up 261.93%–365.34% YoY; net profit attributable to shareholders of the parent company excluding non-recurring gains and losses is expected to reach RMB140mn–180mn, up 263.64%–367.53% YoY; and basic EPS is expected to reach RMB0.1807–0.2324. Based on the midpoint of the forecast range, net profit attributable to shareholders of the parent company was approximately RMB160mn in 9M26, up 313.6% YoY, representing substantial earnings growth.

2. Earnings growth was driven by the core business and was of high quality: the forecast ranges for net profit attributable to shareholders of the parent company and net profit excluding non-recurring gains and losses were identical for 9M26, indicating a minimal contribution from non-recurring gains and losses. Demand from emerging downstream applications for zirconium materials is growing rapidly, while import substitution is accelerating. The company is actively expanding into emerging applications such as thermal barrier coatings, solid oxide fuel cells, and solid-state battery electrolytes, building new growth drivers for its long-term development.

Event

The company releases its 9M26 performance forecast The company releases its 9M26 performance forecast. For January 1–September 30, 2026, net profit attributable to shareholders of the listed company is expected to reach RMB140mn–180mn, versus RMB38.6812mn in the same period last year, representing an increase of 261.93%–365.34% YoY; net profit excluding non-recurring gains and losses is expected to reach RMB140mn–180mn, versus RMB38.4999mn in the same period last year, representing an increase of 263.64%–367.53% YoY; and basic EPS is expected to reach RMB0.1807–0.2324 per share, versus RMB0.0499 per share in the same period last year.

Quick Take

The midpoint of 3Q profit rises sharply, with the performance forecast exceeding expectations. Based on the midpoint of the forecast range, net profit attributable to shareholders of the parent company is expected to reach approximately RMB160mn in 9M26, up 313.6% YoY. Based on the forecast range, net profit attributable to shareholders of the parent company is estimated at approximately RMB59.73mn–99.73mn in 3Q26, up 521.9%–938.4% YoY from approximately RMB9.60mn in 3Q25 and down 0.5% to up 66.2% QoQ from approximately RMB60.02mn in 2Q26. The midpoint is approximately RMB79.73mn, up 32.8% QoQ. Net profit attributable to shareholders of the parent company was approximately RMB20mn/RMB60mn/RMB80mn in 1Q26/2Q26/3Q26, showing sequential earnings growth and a significant increase in the earnings midpoint.

Notably, the forecast ranges for net profit attributable to shareholders of the parent company and net profit excluding non-recurring gains and losses were identical for 9M26. Non-recurring gains and losses made a minimal contribution, indicating that earnings growth was almost entirely driven by the core business and was of high quality. The company’s gross margin reached 24.79% in 1H26, while weighted average ROE was 4.45%, up 2.76 pcts YoY. Earnings growth is expected to accelerate further in 3Q26.

Temporary contraction in Japan’s high-end zirconia capacity creates growth opportunities through import substitution and overseas capacity relocation. Due to adjustments in rare earth resource supply policies, major international producers of high-end zirconia, including Tosoh Corporation and Daiichi Kigenso Kagaku Kogyo, have temporarily reduced capacity. This creates market opportunities for Chinese high-end zirconia companies to participate in global supply chains and take on some relocated overseas capacity. Meanwhile, growing demand from China’s semiconductor, new energy, and other downstream industries for secure and controllable supplies of key upstream raw materials is accelerating import substitution of high-end zirconium materials and gradually reshaping the industry’s competitive landscape. The company’s high-performance zirconium-based materials have been certified by renowned overseas customers, entered their global supply systems, achieved stable mass supply, and secured annual procurement framework agreements, further strengthening the international recognition of its high-end products. Demand from emerging applications enters a structural expansion cycle, while phased capacity ramp-up supports medium- to long-term growth.

Against broadly stable demand from traditional architectural ceramics and refractory materials, strategic emerging industries such as new energy, semiconductors, nuclear energy, and biomedicine are creating incremental demand for high-end zirconium materials. The commercialization of semi-solid-state and solidstate batteries is set to accelerate in 2026, gradually unlocking the strategic value of zirconium-based materials as core components of oxide/halide solid-state electrolytes. Expanding nuclear power capacity will also drive demand growth for nuclear-grade zirconium sponge. In terms of capacity, construction has commenced on projects with annual capacity of 10,000 tonnes of battery-grade high-purity composite zirconia for new energy applications, 30,000 tonnes of fused zirconia ceramics under Phase II, 60,000 tonnes of zirconium oxychloride, and 12,000 tonnes of high-purity oxides from zirconium-hafnium separation under Phase I. The phased capacity ramp-up will support the company’s expansion at scale and penetration into emerging applications. Investment recommendation: The company’s net profit attributable to shareholders of the parent company is estimated at RMB220mn, RMB483mn, and RMB894mn for 2026-2028, corresponding to PE multiples of 46.66x, 21.25x, and 11.5x at the current share price, respectively. Considering the company’s industry position, growth potential, and low-cost advantage, we assign it “Buy” rating.

Risks

(1) Risk of significant fluctuations in zircon sand prices. Global zircon resources are highly concentrated geographically. Australia, South Africa, and Mozambique together account for more than 90% of global reserves. This highly concentrated supply pattern makes zircon sand prices susceptible to sharp fluctuations due to factors such as geopolitics, mining operation accidents, and changes in export policies. If supply disruptions occur in major producing regions or major suppliers jointly cut production to support prices, zircon sand prices may surge sharply, squeezing the profit margins of midstream processing enterprises.

(2) Risk that domestic substitution of high-end products progresses slower than expected. Although Chinese manufacturers are expected to achieve import substitution in the high-end nano zirconia field, this process faces dual barriers in technology and customer certification. High-end application fields impose extremely stringent requirements on material purity, particle size distribution, and batch stability. Although Chinese manufacturers have advantages in production capacity scale, gaps remain in the performance stability and brand recognition of high-end products. Customers’ willingness and pace to switch suppliers may fall short of expectations, slowing the progress of domestic substitution.

(3) Risk that SOFC market promotion falls short of expectations. Although the SOFC industry benefits from the surge in electricity demand from AI data centers, the initial investment cost of SOFC systems is relatively high. While long-term operating costs have advantages, the high upfront capital expenditure may suppress downstream customers’ purchasing willingness and indirectly affect the demand growth for YSZ materials.

Sensitivity analysis:

Under the optimistic scenario, import substitution of high-end zirconium materials progresses smoothly, and emerging demand from solid-state batteries and SOFC exceeds expectations. In addition, the company's capacity expansion projects, including high-purity composite zirconia, reach designed capacity ahead of schedule, while sales volumes and prices of its key products both increase. We expect the company's revenue and gross margin to exceed expectations. Revenue is projected at RMB1.407bn, RMB2.375bn, and RMB3.599bn in 2026-2028, up 13.05%, 68.81%, and 51.5% YoY, respectively. Net profit attributable to shareholders of the parent company is projected at RMB220mn, RMB483mn, and RMB894mn, up 316.74%, 119.62%, and 85.1% YoY, respectively, implying P/E ratios of 47x, 21x, and 11x. Under the pessimistic scenario, import substitution of high-end zirconia is hindered, demand for solid-state battery electrolytes and SOFC falls short of expectations, capacity expansion projects are delayed, and rising zircon sand prices squeeze gross margin. The company's revenue is projected at RMB1.32bn, RMB1.65bn, and RMB2.10bn in 2026-2028, up 6.03%, 25.00%, and 27.27% YoY, respectively. Net profit attributable to shareholders of the parent company is projected at RMB200mn, RMB300mn, and RMB420mn, up 278.92%, 50.00%, and 40.00% YoY, respectively, implying P/E multiples of 53x, 35x, and 25x.