Zhejiang Huazheng New Materials Co., Ltd.

Margins (%)

FY2021–FY2025 revenue CAGR was 4.8%. FY2016–FY2025 CAGR was 15.1% (FY2016 revenue RMB 1,250 million).

EBITDA and operating income. Chinese GAAP statements do not report an "operating income" or EBITDA line. Approximations from the reported figures: FY2025 EBIT (pre-tax profit plus finance expense) of about RMB 377 million, and EBITDA of about RMB 584 million after adding RMB 207 million of depreciation, amortisation and impairment. Both include about RMB 211 million of non-recurring gains. On the same basis FY2024 EBIT was about RMB -34 million and EBITDA about RMB 233 million.

Quality of FY2025 earnings

FY2025 attributable profit of RMB 276.7 million included about RMB 211 million of non-recurring items. The main ones were about RMB 171 million of government grants (up more than RMB 90 million year on year) and about RMB 134 million of asset-disposal gains. Both relate chiefly to the government-led relocation of part of the Huayi Road headquarters site (agreements worth RMB 300.59 million and RMB 34.62 million), which added about RMB 190 million after tax. Q4 2025 shows the effect clearly: attributable profit was RMB 214.1 million but only RMB 16.1 million after non-recurring items. Core profitability recovered only modestly in FY2025, to RMB 65.7 million of recurring profit.

The 2026 inflection

Year-to-date 2026 (nine months): revenue RMB 5,609.8 million (+75.54%), attributable net profit RMB 799.96 million (+1,177.71%), recurring net profit RMB 793.36 million (+1,499.31%). Q3 2026 revenue was up 140.8% year on year and 53.6% on the previous quarter. Q3 recurring profit of RMB 626.8 million was up 4,003% year on year. Gross margin of 36.06% in Q3 2026 compares with 18.72% in Q2 2026 and a 13.1% FY2025 average. It is the highest gross margin in the company's listed history and well above the 22.0% FY2016 pre-downturn level. Unlike FY2025, 2026 profits are almost entirely recurring: non-recurring items were under 1% of nine-month profit.

H1 2026 detail: revenue RMB 2,959.9 million (+41.28%), pre-tax profit RMB 190.5 million (+310.03%), attributable net profit RMB 172.9 million (+305.28%), recurring net profit RMB 166.5 million (+385.11%), basic EPS RMB 1.14, weighted ROE 7.86% (+4.97 percentage points).

Balance sheet

The total-asset series runs RMB 5,098 million (FY2021), 5,640 million (FY2022), 5,792 million (FY2023), 6,113 million (FY2024) and 6,335 million (FY2025). At end-2025, fixed assets had an original cost of RMB 3,479.3 million, accumulated depreciation of RMB 861.0 million and impairment of RMB 28.2 million, giving a net book value of RMB 2,590.1 million and an overall condition ratio of 74.4%. The company holds no material goodwill. The only financial investment is a RMB 12 million stake in Nanjing Kuanneng.

Leverage. Liabilities/assets were 75.5% at end-2024 and 72.4% at end-2025, among the highest in China's listed CCL group. Short-term borrowings net of cash were RMB 661 million at end-2024 and RMB 506 million at end-2025. At end-2025 the RMB 1,179 million of non-current liabilities mostly comprised the liability component of the convertible bond and long-term bank loans. The bond was then almost entirely converted into equity by 13 February 2026, removing about RMB 0.57 billion of debt. Together with 2026 retained earnings, this lifted attributable equity 42.3% to RMB 2,463 million by June 2026. Liabilities/assets at 30 June 2026 were about 64%, derived from total assets of RMB 7,126 million and total equity of about RMB 2.48 billion.

Cash flow

Operating cash flow was RMB 377.0 million in H1 2026 (+137.7%) and about RMB 0.56 billion for the first nine months of 2026, up about 268% year on year. In FY2025 the company used relocation proceeds and operating cash to repay about RMB 362 million of debt. Dividends: the board proposed a FY2025 cash dividend of RMB 1.30 per 10 shares (RMB 0.13 per share), about RMB 20 million on the enlarged share base and a payout of roughly 7% of reported profit. The company has no buyback programme.

Ratios

FY2025 ROIC was about 9%, approximated as EBIT after a 15% tax rate divided by average equity plus net short-term borrowings and non-current liabilities, and it was flattered by one-off gains. Net debt/EBITDA (short-term borrowings net of cash, over approximate EBITDA) was about 0.9x for FY2025.

Trend commentary

2021 peak: A commodity price spike in CCL and the Qingshanhu II ramp lifted revenue 58.5% and net profit to RMB 238 million.

2022–2024 trough: Demand fell, new capacity at Zhuhai (June 2022) arrived into oversupply, and copper foil stayed expensive. CCL ASP fell from RMB 131 to RMB 85 per sheet even as volume rose 72%, from 20.51 million to 35.30 million sheets. Depreciation from the 2020–2022 capex cycle pressed on margins. The result was two losses, and the Zhuhai bond-funded project fell short of its promised RMB 69.28 million annual profit (actual: RMB -17.49 million in 2023, RMB 20.26 million in 2024 and RMB 54.81 million in 2025).

2025 transition: Volume rose to a record 38.87 million sheets, ASP stabilised at RMB 87, and the high-end mix rose. One-off relocation gains made the headline profit.

2026 breakout: Price increases in AI-driven high-speed laminates, cost pass-through on copper foil, glass cloth and resin, and full utilisation (lead times stretched from under 10 days to about a month) pushed operating leverage through a largely depreciated asset base. Q3 2026 gross margin of 36% suggests unusually wide spreads, not just a recovery to the historical norm.

Management guidance

Management issues no formal annual guidance. Its qualitative outlook (FY2025 annual report, H1 and Q3 2026 reports and investor Q&A) says high-grade CCL demand is strong and supply-constrained, prices and volumes are rising together, and lead times have stretched to about one month. New H2/H3 capacity depends on the RMB 1.2 billion placement.

Consensus growth expectations

Before Q3, the sell side expected 2026 revenue of RMB 6.4–7.3 billion and net profit of RMB 0.47–0.57 billion, followed by 23–30% revenue growth and 40–63% profit growth in 2027. Actual nine-month results (revenue RMB 5.61 billion, profit RMB 0.80 billion) mean full-year 2026 will likely exceed RMB 7.5 billion of revenue and RMB 1.2 billion of profit if Q4 holds near Q3 levels.

Bull case

1. Margins are structurally higher. Q3 2026 gross margin of 36% on fully depreciated FR-4 lines plus a rising high-speed mix shows that cost pass-through plus scarcity can sustain margins well above the 13–22% historical range while industry capacity stays tight until 2027–2028.

2. CBF becomes a second engine. With Ajinomoto at about 95% of a USD 0.5–1.1 billion market and reported supply curbs to China, even a small domestic share of FC-BGA build-up film would be worth more than the whole of today's composites business, at far higher margins.

3. High-end capacity at the right time. The 12 million-sheet H2/H3 line adds about 31% to volume at Megtron 4–8 class, and conversion of the bond has already deleveraged the balance sheet. Equity funding limits financial risk.

Bear case

1. Cyclical peak. The 2021 peak was followed by two loss years. Four or more domestic peers are adding high-grade capacity, and the industry expects price increases to converge within three to five years.

2. Execution record. The last growth project missed promised returns for three straight years, and CBF has stayed in validation for four years without material revenue.

3. Valuation and sentiment risk. The stock fell about 50% from its October 2026 high within weeks. Executives sold near the peak and a speculative individual holder sits just below 5%, so the share price reflects momentum flows as much as fundamentals.

Key catalysts and monitorables (next 12 months)

• SSE approval and CSRC registration of the RMB 1.2 billion placement — Expected timing: Q4 2026 – H1 2027; What to watch: Pricing, dilution and investor mix

FY2026 annual report and dividend: Expected timing: March–April 2027; What to watch: Full-year profit; payout increase; segment margins

Q4 2026 and Q1 2027 gross margin: Expected timing: Jan–Apr 2027; What to watch: Whether margins of 30% or more hold as copper and glass-cloth costs move

CBF qualification at domestic FC-BGA substrate makers: Expected timing: 2027; What to watch: First batch orders for computing chips

• Extreme Low Loss approval with an international chip customer — Expected timing: 2027; What to watch: Entry into global AI platforms

Zhuhai H2/H3 line construction start: Expected timing: 2027; What to watch: Capex timing and ramp schedule

Industry pricing (Kingboard, Shengyi notices): Expected timing: Monthly; What to watch: Signs of price peak or decline

Insider and major-holder activity: Expected timing: Ongoing; What to watch: Fang Wenyan crossing 5%; Huali Group stake

Analyst verdict

Huazheng New Materials has gone from loss-making also-ran to one of the clearest earnings-leverage stories in China's AI hardware supply chain. The numbers are hard to dispute. Nine-month 2026 revenue rose 75.5% to RMB 5.61 billion, and net profit rose more than twelve-fold to RMB 800 million, almost entirely recurring. Third-quarter gross margin of 36.1% is the highest in the company's listed history. The turnaround was not created by financial engineering: the one-off relocation gains that flattered FY2025 have disappeared from the 2026 numbers. Price, mix and utilisation on an asset base built in 2020–2022 drive the gain, as AI-server demand and raw-material scarcity turned a commoditised laminate market into a seller's market.

The harder question is durability. Huazheng is still a sub-scale player with about 2.8% of the global market and a very small high-speed share. Its history of returns on growth capital is weak, and it is about to add capacity at the same time as several domestic peers. If Q3 2026 margins revert even halfway toward the 13–16% long-run norm, earnings would fall sharply from the current run-rate. The CBF build-up film is the real strategic option. It addresses a near-monopoly market that matters to national supply-chain security, but four years into development it is still in qualification. Until batch FC-BGA orders arrive it should be valued as an option, not as earnings.

At roughly 19–22x trailing and 8–9x annualised Q3 earnings, the market is already discounting a cyclical peak. The stock's recent 50% drawdown from its high shows how sensitive it is to signs that the cycle is turning. The investment case therefore rests on three verifiable events: placement approval and a timely Zhuhai ramp, gross margins holding above about 25% through mid-2027, and a first FC-BGA-scale CBF order. The first two would support today's valuation; the third would justify a structural re-rating. Absent these, Huazheng is best viewed as a high-beta, well-run cyclical at an earnings peak rather than a compounder.