Key takeaway

The company expects its 1H26 results to continue rising sharply YoY, with net profit attributable to shareholders of the parent company projected to grow 82%-95% YoY, further releasing profit elasticity in its core business. This earnings forecast once again validates that the company's core business customer structure upgrade has entered a realization phase. The share of high-growth customers such as DJI in its modified plastics downstream business continues to rise, driving the company's core business to steadily shift from traditional PVC, cable materials, and home appliance materials to high-margin scenarios such as drones, robots, and 3D printers, with profit growth significantly shifting gears. Moreover, the company is also opening a second growth curve in its PPO business. High-frequency, high-speed PPO resin has achieved mass production and is being supplied to downstream high-end copper clad laminate customers such as SYTECH. The subsequent capacity expansion path of "Zhaoqing facility replication + Zhuhai facility reservation" is clear and is expected to drive accelerated growth for the company.

Event

The company released its 1H26 earnings forecast, expecting 1H26 revenue to increase approximately 18% compared to the same period last year. It expects 1H26 net profit attributable to shareholders of the parent company to be RMB87-93mn, up 82%-95% YoY, and recurring net profit attributable to shareholders of the parent company to be RMB70-76mn, up 45%-58% YoY.

Quick Take

Core modified plastics growth accelerates, profitability continues to improve. The company's expected high-speed growth in net profit attributable to shareholders of the parent company in 1H26 is mainly due to continuous improvement in profitability amid ongoing customer structure optimization, which in turn drove a significant increase in revenue growth. More importantly, the gross profit margin further improved compared to the same period last year, with gross profit increasing significantly. In addition, non-recurring gains and losses impacted net profit attributable to shareholders of the parent company by approximately RMB17mn in 1H26. This included asset disposal gains of RMB5.72mn from equipment sold by Zhongyao Electric and fair value change gains of approximately RMB9.92mn from the Tongchuang Fund. Also, the company amortized equity incentive expenses of RMB2.94mn in 1H26, representing an increased profit drag of RMB10.62mn compared to the same period last year.

Core business structure continues to upgrade, emerging businesses drive profit improvement.

The company is one of the enterprises in the modified materials sector with relatively fast customer response and strong growth potential. The company fully benefits from the trends in the low-altitude economy and robotics industries. The share of traditional PVC, cable materials, and home appliance materials within it s modified plastics business continues to decline, while the company prioritizes allocating capacity and resources to high-margin customers such as drones, robots, and 3D printers. The company has a rich product matrix and holds a leading position in technical segments such as carbon fiber composites, modified PA, modified PC, wear-resistant POK, and high-performance 3D printing materials, providing localized material solutions for leading enterprises. As the company actively advances into high-value-added sectors, its products are upgrading to higher-value-added application scenarios featuring lightweight, flame retardancy, weather resistance, dimensional stability, and precision molding. Business revenue from leading clients such as DJI, Xiaomi, and Huawei is rapidly increasing its share of the company's overall total. With the continuous expansion of advantageous sectors like the low-altitude economy and robotics, the company's main business profitability is expected to improve further.

Seizing AI era opportunities, PPO industrialization is accelerating.

The company initiated its first-phase 300-ton PPO resin project back in 2021, with the product primarily used for low-loss, high-frequency, and high-speed copper clad laminates. In 2025, the company's PPO project achieved normal, stable mass production and supply, passed downstream CCL customer certification, and entered the volume supply phase. In terms of customers, the company supplies PPO electronic chemicals to high-frequency and high-speed CCL enterprises such as SYTECH. However, due to limited production capacity and production line bottlenecks, PPO orders are in a state of short supply. High-frequency and high-speed PPO is used in the resin systems of copper clad laminates related to AI servers, high-speed communications, and advanced packaging. Its low Dk and low Df performance directly affects signal loss and transmission stability. As AI server PCBs upgrade towards higher layer counts and low-loss materials, and demand grows rapidly, the outlook for the company's high-frequency and high-speed PPO resin business is optimistic.

The PPO expansion path is clear, and the second growth curve is gradually unfolding.

Zhaoqing Yinxi JuChuang is the company's PPO industrialization entity, with an initial-phase designed capacity of 300 tons. In 2026, the company plans to replicate a second production line at the original site, with construction expected to be completed in the second half of 2026, adding 300 tons of designed capacity. This is expected to alleviate the current production capacity bottleneck to some extent. On May 18, company General Manager Lin Dengcan, Chief Engineer and Yinxi JuChuang General Manager Fu Yi, among others, participated in a capital increase for Yinxi JuChuang, raising its registered capital to RMB23.0769mn. The management and technical leaders are further bound to the PPO platform. Furthermore, the company has reserved space for thousand-ton-level expansion in the Grade-A chemical industrial park at Zhuhai Gaolan Port, forming a capacity pathway of "verification and ramp-up in Zhaoqing, volume scale-up in Zhuhai." The company's PPO business has a clear expansion path and smooth customer certification, which is expected to open a second growth curve.

Investment recommendation: SILVER AGE is continuously upgrading its customer structure for its main modified plastics business, while its high-frequency high-speed PPO business is steadily opening a second growth curve driven by the development of the AI industry. We estimate the company will achieve net profit attributable to shareholders of the parent company of RMB180mn, RMB260mn, and RMB350mn in 2026-2028, corresponding to P/E multiples of 45x, 31x, and 23x. Considering the upward trend of the company's main business and the accelerating progress of its new PPO business, we give a "Buy" rating.

Risks:

1. Raw material and cost fluctuation risk: The company's modified plastics business is highly sensitive to the prices of upstream materials such as resins, auxiliaries, and additives. If upstream prices rise rapidly and cannot be fully passed on in the short term, gross margin will come under significant pressure; meanwhile, energy, transportation, and exchange rate fluctuations will also push up overall costs.

2. Order volume and implementation pace risk: Modified plastics projects typically need to go through stages such as sample verification, trial production ramp-up, and mass production switchover. If the progress of customer technology introduction falls short of expectations, the pace of revenue recognition will be delayed, which may affect performance.

3. Risk of deteriorating industry competition landscape: There are multiple market participants in both the modified plastics and PPO industries. If new production capacity expands rapidly in the future and downstream customers' bargaining power increases, cutthroat competition may occur in the industry. If the industry enters a stage of competing solely on volume, there is a risk of falling into a low-margin struggle, where unit gross profit may decline and profit quality could be weakened.

4. Customer structure and industry cyclicality risk: The business's correlation with end-use scenarios such as automotive electronics, low-altitude economy, and AI computing power is increasing. If the growth of these related industries slows, destocking accelerates, or alternative technologies advance, both order growth and unit price negotiation capability may be squeezed. If customer concentration is high, delays, price cuts, or payment fluctuations from a single customer will directly affect the stability of the company's performance and gross margin performance.

5. Production safety risk: There are certain safety risks in the production processes of modified plastics and PPO. Any weakness in safety management could lead to production halts, equipment damage, shutdowns for inspection and rectification, or personnel safety incidents, thereby creating periodic pressure on profitability and cash flow.

6. The company's profit in this report is relatively sensitive to changes in overall gross margin. We use the current earnings forecast as the neutral scenario, assuming that operating revenue remains unchanged f rom the base forecast for 2026-2028, and only adjust gross margin for the calculation: in the optimistic scenario, gross margin increases by 1.0pct compared to the neutral scenario; in the pessimistic scenario, gross margin decreases by 1.0pct compared to the neutral scenario, with other expense ratios, income tax rates, minority interest profit and loss ratios, and non-recurring profit and loss items remaining unchanged. The calculation results show that under the pessimistic scenario, the estimated net profit attributable to shareholders of the parent company for 2026-2028 is RMB150mn/230mn/320mn, representing a decrease of 13.4%/9.8%/7.8% compared to the neutral scenario; under the optimistic scenario, the estimated net profit attributable to shareholders of the parent company for 2026-2028 is RMB200mn/280mn/370mn, representing an increase of 13.4%/9.8%/7.8% compared to the neutral scenario. If the company's gross margin declines due to factors such as raw material price fluctuations and intensified competition, there is a downside revision risk to the earnings forecast.