Key takeaway

The company recently approved a RMB24mn-RMB48mn share buyback plan to facilitate employee incentives. This move helps refine its long-term incentive mechanism, underscores its focus on shareholder interests, and reflects insiders' confidence in long-term development and their assessment of the current valuation level. The company is the only Chinese enterprise among the four major global suppliers in the hygiene hot melt adhesive industry, an industry with very high entry barriers. Currently, the company is in a phase of steadily seizing market share from foreign competitors, forcing those giants to cede share at the expense of short-term profitability. As a result, it is subject to raw material price fluctuations and foreign exchange disturbances in the short term. However, from a medium-tolong- term perspective, hygiene products remain a high-barrier, high-concentration industry. With its strong operational efficiency and competitive strength, the company is wellpositioned to achieve higher and more stable profitability in the future.

Event

On July 16, the company's Board of Directors approved the Proposal on the Share Buyback Plan via Auction Bidding, intending to buy back company shares through auction bidding for use in employee stock ownership plans or equity incentives. The total buyback amount is no less than RMB24mn and no more than RMB48mn, with a buyback price not exceeding RMB38.67 per share. The implementation period shall not exceed 12 months from the date of Board approval. Based on the maximum price and amount, the estimated buyback is approximately 1.2413 million shares, accounting for 1.07% of the company's current total share capital.

Risks:

1) Risk of significant raw material price fluctuations: The company's main raw materials include petroleum resin, high polymer, and mineral oil. Sustained and significant fluctuations in raw material prices may impact the company's product costs and profitability.

2) Risk of significant exchange rate fluctuations: The proportion of the company's overseas business continues to rise. Fluctuations in the RMB exchange rate may affect procurement costs and export revenue, thereby disrupting profitability.

3) Risk of slower-than-expected market development: If the development of overseas customers or the expansion of the new hot melt adhesive business for consumer packaging falls short of expectations, it may affect the pace of the company's market share gains and revenue growth.

4) Risk of slower-than-expected project progress: The company's Malaysia production base is in the capacity ramp-up phase. If the pace of customer onboarding or capacity utilization falls short of expectations, it may affect the release of economies of scale and the incremental contribution from overseas business. The Mexico base has suspended construction due to the international situation, and subsequent progress is uncertain.

5) Risk of intensifying industry competition: If international giants increase investment in the Chinese market or new competitors break through entry barriers, it may affect the company's market share and profitability.

6) Gross profit margin sensitivity risk: The company's profitability is relatively sensitive to changes in overall gross profit margin. We use the current earnings forecast as the neutral scenario, assuming that operating revenue remains unchanged from the base forecast for 2026-2028, and only adjust overall gross margin for thecalculation: in the optimistic scenario, overall gross margin increases by 0.5pct compared to the neutral scenario; in the pessimistic scenario, overall gross margin decreases by 0.5pct 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 RMB168mn/RMB247mn/RMB333mn, representing a decrease of 6.3%/5.1%/4.5% compared to the neutral scena rio; under the optimistic scenario, the estimated net profit attributable to shareholders of the parent company is RMB191mn/RMB274mn/RMB364mn, representing an increase of 6.4%/5.1%/4.5% compared to the neutral scenario. If prices of raw materials such as petroleum resin, high polymer, and mineral oil rise, while product price increases or product mix upgrades fail to pass through cost pressures in a timely manner, the company's overall gross profit margin and earnings forecasts face downside revision risk.