Xiamen Hengkun New Material Technology Co., Ltd.

All figures are in RMB million unless stated. FY2022–FY2024 figures come from the prospectus (audited by Rongcheng CPA), FY2025 from the annual report, and FY2021 from historical financial statements.

Income statement

The first year of the growth row shows 0 only as a base-year placeholder. FY2021 net income excluding non-recurring items is approximated by total net profit (RMB 27 million).

Revenue grew at a 47.0% compound annual rate from FY2021 to FY2025 and at 27.0% from FY2022 to FY2025.

Dividends. The company proposed no cash dividend, bonus shares or capitalisation issue for FY2025. At 31 December 2025, the parent company's undistributed profit was RMB 30.15 million.

Commentary. Hengkun has grown revenue strongly while profit has stood still. Revenue doubled from FY2022 to FY2025, but attributable net income stayed at roughly RMB 90–100 million. The reason is the change in mix. The introduced business earned about 98% net-basis gross margins and produced 66–82% of gross profit in FY2022–FY2024. Its revenue is being replaced by self-produced revenue earning 29–36% gross margins. Each yuan of revenue moved from imports to own production therefore lowers the reported gross margin, even though it builds a more durable business.

FY2025 shows the change most clearly. The SKMP termination cut trade revenue by 61.59%. Reported gross margin fell 9 points to 44.84%. Net income excluding non-recurring items fell 15.47% to RMB 79.71 million. Government subsidies rose 61.45% to RMB 11.24 million and supported headline profit. The new Hefei plant was in trial production, so depreciation and running costs rose. Selling, administrative and R&D expenses together grew 16.2% to RMB 237 million.

Interim and quarterly trend (FY2026 interim reports)

Q1 2026 was flat, with net profit down 9.41%, operating cash flow of minus RMB 41.61 million and inventory rising to RMB 278 million. Momentum then returned. In Q2 and Q3, core profit (excluding non-recurring items) grew strongly: up 50.09% year on year in Q3 alone. Gross margin for the first nine months of 2026 recovered to 53.16%, up 9.56 points, helped by scale effects in self-produced products and by in-house resin. Headline Q3 net profit fell 49.25% because of fair-value losses on trading financial assets and other non-current financial assets. The company also booked RMB 16.43 million of asset and credit impairments for the nine months, against which RMB 9.10 million of inventory provisions were written back.

Balance sheet

The debt-to-asset ratio was 33.92% at end-FY2023, 43.26% at end-FY2024 and 37.16% at end-FY2025. Construction in progress reached RMB 462 million at 30 September 2026, up nearly 30% from the start of the year.

Commentary. Before the IPO, Hengkun paid for about RMB 1.4 billion of capital spending over FY2022–FY2025 with a 2022 private placement (RMB 643 million) and growing bank debt. Net debt peaked at RMB 239 million at end-FY2024. The November 2025 IPO raised RMB 892 million net, and the company ended FY2025 with RMB 746 million of net cash. Short-term borrowing still rose to RMB 669 million, so the company carries both large cash balances and short-dated bank debt, which is common among STAR Market issuers. Inventory grew 53.85% in FY2025 and kept rising into Q1 2026. That reflects the ramp of new products and stocking of imported resin, but it is a working-capital item to watch.

Cash flow

The company has made no share buybacks. FY2025 operating cash flow fell 26.57%.

Commentary. Free cash flow has been negative every year, at minus RMB 116 million to minus RMB 281 million. Capital spending has run at three to four times depreciation as the company built Zhangzhou, Dalian phases I and II, and Hefei. The IPO projects alone plan RMB 1.352 billion of total investment. Once complete, they will add up to RMB 96.75 million a year of depreciation and amortisation, roughly equal to FY2025's entire core net profit. How quickly the new capacity is used will decide whether margins expand or are squeezed in 2027–2028.

Ratios

Commentary. Returns are low for a specialty-materials company: ROE was below 8% in every year and 3.9% in FY2025. The asset base is large relative to revenue, with asset turnover around 0.2x, because the company is building capacity ahead of qualification. Plants at Zhangzhou were also under-used. BARC, KrF, i-Line and TEOS lines all ran below 50% utilisation from 2022 to H1 2025, while SOC utilisation rose from 20.87% in 2022 to 57.42% in 2024. Higher utilisation is the main lever for returns.

Management guidance

There is no numerical guidance. Management expects steady revenue growth in 2026 and gradual gross-margin improvement from scale. It has said orders for mature products give visibility into H2 2026. It expects the Hefei plant to show industrialisation progress between late 2026 and H1 2027, with output depending on customer qualification.

Consensus

No published consensus. On current run-rates, FY2026 revenue would be about RMB 750–770 million: nine-month revenue of RMB 557 million plus a fourth quarter similar to Q3's RMB 216 million. That would be growth of about 14–17%. Attributable net income would be about RMB 120–130 million, depending on fair-value movements.

Bull case

1. Core profitability is inflecting. Nine-month gross margin of 53.16% (up 9.56 points) and Q3 core profit up 50.09% suggest the drag from the trade-to-self-production switch is over. Earnings can now grow with self-produced volumes.

2. ArF and precursors are second and third growth engines. ArF is fully qualified, Hefei is coming on stream and precursor revenue is growing about 50% a year. The company could double its addressable market by 2028, when China's lithography and precursor markets are forecast to reach RMB 49.9 billion combined.

3. Localisation is still at an early stage. Even in SOC, domestic supply is only about 10% of 12-inch demand, and in BARC and KrF only 1–2%. Fab expansion of about 1 million wafers a month gives a long runway.

Bear case

1. Concentration risk. One customer accounts for 55% of sales. Any change in that memory maker's capital spending, supplier policy or pricing would hit earnings sharply, and Customer C's acquisition by SK hynix adds further uncertainty.

2. Returns and cash flow. ROE is 3.9%, free cash flow has been negative for five straight years, and up to RMB 96.75 million a year of new depreciation is coming. Margins could be squeezed if Hefei and Dalian phase II ramp slowly, given that most existing lines already run below 50% utilisation.

3. Valuation and competition. At about 120 times trailing earnings, the shares price in successful ArF commercialisation. Better-funded peers such as Tongcheng, Nata and Dinglong are already selling ArF photoresist at scale, and Hengkun lacks an in-house ArF exposure tool.

Key catalysts and monitorables (next 12 months)

End of 12-month IPO lock-ups: Timing: From about 18 Nov 2026; What to watch: Selling by pre-IPO funds

FY2026 annual report: Timing: Apr 2027; What to watch: Gross margin above 50%, core profit growth, top-customer share

Hefei ArF industrialisation: Timing: Late 2026 to H1 2027; What to watch: Volume orders beyond small batches; purchase of an ArF exposure tool

Dalian phase II: Timing: 2027; What to watch: Revenue from metal-based and high-k precursors; precursor segment break-even

Honggen spin-on dielectric joint venture: Timing: 2026–2027; What to watch: First qualifications and orders

Customer C under SK hynix ownership: Timing: Ongoing; What to watch: Volumes of TEOS and other products

First dividend decision: Timing: Apr 2027; What to watch: Capital-allocation policy

Fair-value positions: Timing: Quarterly; What to watch: Size and volatility of financial-asset holdings

Analyst verdict

Hengkun has done what few Chinese materials companies have managed. It turned a distribution business into a genuine formulation and manufacturing franchise in critical 12-inch fab materials. Its SOC and BARC lead among domestic suppliers is real, and SOC share has passed 10% of China's market. Self-produced revenue tripled in two years to RMB 568 million and now makes up almost nine-tenths of main-business revenue.

The cost of the transition is visible in the FY2025 accounts. As high-margin trade revenue fell away, gross margin dropped to 44.8%, core profit fell 15%, and returns on a balance sheet enlarged by the IPO slipped below 4%. The 2026 numbers suggest the trough is past. Nine-month gross margin recovered to 53%, core profit rose almost 50% in Q3, and precursors are growing about 50% a year with the segment close to profitability.

The company's next stage depends on three things. ArF photoresist must move from qualification to volume orders. The new Hefei and Dalian capacity must be filled without diluting margins. And the business must reduce its dependence on one memory customer. Capacity is being funded, and the market and policy backdrop is about as favourable as it gets, with localisation rates of 1–10% and around 19 new 12-inch fabs under construction.

What weighs against the company is scale and valuation. At RMB 659 million of revenue, Hengkun is a fifth the size of Tongcheng, Dinglong or Nata, and each of those is investing heavily in the same ArF and ancillary-material opportunities. It has fewer patents and depends on imported resins and licensed TEOS technology. At about 120 times trailing earnings and 19 times sales, the shares already price in a successful ArF ramp.

Overall, Hengkun is a high-quality but concentrated way to invest in the localisation of Chinese memory-fab materials. The operating trend is improving clearly, while valuation and execution risks remain high. Its credibility in 2027 will rest on volume ArF orders and core profit growing faster than the new depreciation.