First Shanghai Securities has issued a research report stating that it forecasts Tiangong International's (00826) revenue for 2026-2028 to be RMB 5.77 billion, RMB 6.92 billion, and RMB 7.99 billion, respectively, with projected net profit attributable to shareholders of RMB 600 million, RMB 820 million, and RMB 1.02 billion. The brokerage has set a target price of HK$3.89, corresponding to 15 times PE for 2026, implying 52.4% upside from the current price, and maintains its "Buy" rating.

First Shanghai's key views are as follows:

Profit Continues Double-Digit Growth, Gross Margin Improves Significantly

In the first half of 2026, the group achieved revenue of RMB 2.471 billion, up 5.5% year-on-year; gross profit rose 38.2% year-on-year to RMB 613 million, with gross margin expanding 5.9 percentage points year-on-year to 24.8%; net profit attributable to shareholders increased 11.2% year-on-year to RMB 226 million. Raw material cost increases were smoothly passed through to downstream customers, and combined with the ramp-up of high value-added products, this drove profitability improvement in the core business.

Die and Tool Steel Pricing Power Continues to Materialize, Cemented Carbide Ramp-Up Contributes to Growth

In the first half of 2026, revenue from die steel and high-speed steel grew 1.0% and 20.8% year-on-year, respectively, reaching RMB 1.166 billion and RMB 476 million; gross margins improved to 17.5% and 25.7%, respectively, up 3.7 and 10.1 percentage points year-on-year. Among these, die steel enhanced profitability through optimizing its domestic product mix, while high-speed steel benefited from the pass-through of tungsten prices and a recovery in overseas demand, with export revenue growing 48.9% year-on-year. The cutting tools business also gained momentum, with revenue growing 42.3% year-on-year to RMB 565 million and gross margin rising to 34.4%; in particular, cemented carbide cutting tool sales surged 221% year-on-year to RMB 176 million, becoming an important growth driver for domestic substitution of high-end products.

Titanium Alloy Orders Under Near-Term Pressure, Positioning in PCB Cutting Tools

In the first half of 2026, titanium alloy revenue declined 35.1% year-on-year to RMB 226 million, with gross margin falling 11.7 percentage points year-on-year to 12.5%, mainly due to delays in new consumer electronics product production. In terms of growth initiatives, the company launched an expansion project in July this year for an annual production capacity of 300 tonnes of ultra-fine grain PCB cutting tool specialty rods, and is positioning itself in PCB precision cutting tools through a joint venture, with plans to ultimately achieve annual production and sales of 300 million drill bits and 100 million milling cutters.

Powder Metallurgy Application Validation Continues to Break Through, High-End Material Industrialization Advances Steadily

The company continues to advance the extension of powder metallurgy technology into high-end applications: 1) In integrated die-casting, related core components passed production testing at multiple leading domestic die-casting enterprises in the first half of the year; 2) In nuclear fusion, 304B7 powder metallurgy high-boron steel completed specific testing, and samples will be sent to the ITER organization in France for further validation.