On August 24, the company released its 2026 semi-annual report, revealing a 50.5% year-on-year surge in revenue to RMB 8.67 billion, alongside a net profit attributable to shareholders of RMB 820 million—a sharp turnaround from the RMB 90 million loss recorded in the prior-year period. The gross margin expanded by 16.1 percentage points year-on-year to 29.9%, confirming a clear inflection point in performance, with results falling within the previously guided range and meeting market expectations.

In the second quarter of 2026, revenue reached RMB 4.76 billion, while net profit attributable to shareholders hit RMB 560 million, marking a year-on-year swing back to profitability from a RMB 120 million loss and a 115.1% sequential increase. The gross margin for the quarter stood at 31.4%, up 17.3 percentage points year-on-year and 3.3 percentage points quarter-on-quarter, further solidifying the earnings recovery trend.

The lithium battery separator segment continues to see improving profitability, underpinned by tight supply-demand dynamics and rising prices. During the first half of 2026, revenue from lithium battery separators totaled RMB 7.62 billion, up 58.1% year-on-year, with a gross margin of 31.7%, representing an 18.0 percentage point improvement and accounting for 87.9% of total revenue. Shipments for the period are estimated at 7.6–7.7 billion square meters, with a blended unit selling price of approximately RMB 1.0 per square meter—an increase of about RMB 0.1 per square meter compared to 2025—translating to a net profit of roughly RMB 0.11 per square meter in the first half. In the second quarter, shipments reached an estimated 4.1–4.2 billion square meters, with sequential price gains of approximately RMB 0.03–0.04 per square meter.

Overseas revenue climbed 34.7% year-on-year to RMB 1.56 billion, with a gross margin of 42.5%—up 5.2 percentage points year-on-year and significantly higher than domestic margins, which ranged between 24.0% and 30.1%. Meanwhile, overall expense ratios declined, inventories continued to shrink, and cash flow turned strongly positive. Total operating expenses for the first half reached RMB 1.20 billion, an increase of RMB 260 million year-on-year, but the expense ratio fell 2.4 percentage points to 13.8%. Selling expenses rose 25.8%, administrative expenses grew 33.6%, research and development expenses increased 18.5%, and finance costs climbed 37.5%. Inventory stood at RMB 1.93 billion, down 15.4% year-on-year, while operating cash flow surged 452.4% to RMB 1.16 billion, translating to a net profit cash content ratio of 170.5%.

The separator industry is witnessing accelerated elimination of low-end, inefficient capacity, gradually dismantling the homogeneous price-war competitive landscape. The sector has entered a new phase characterized by tight supply of high-end capacity and premium pricing for high-quality products. According to SNE Research data, global power battery installations reached 608.5 GWh in the first half of 2026, up 20.0% year-on-year, while global energy storage lithium battery shipments hit 461.3 GWh, surging 71.0%. Wet-process separator supply growth is trailing industry demand growth, sustaining a balanced-to-tight supply-demand dynamic. For the second half of the year, production capacity from eight new lines in Yuxi will continue to ramp up, while the acquisition of SK's separator business adds approximately one billion square meters. Additionally, the company announced on May 14 a new investment of five billion square meters of capacity in Zigong, Sichuan, which has recently obtained fixed-asset investment project filing and is expected to begin contributing capacity from next year or the year after. The company's separator shipments are projected to exceed 16 billion square meters this year and 20 billion square meters next year, placing the separator business firmly on a trajectory of simultaneous volume and price growth.

As the undisputed domestic leader in lithium battery separators, the company is well-positioned to benefit from sustained growth in lithium battery demand, with separator products exhibiting a clear trend of rising volumes and prices. We forecast net profits attributable to shareholders of RMB 2.04 billion, RMB 4.15 billion, and RMB 6.16 billion for 2026 through 2028, respectively. Based on the August 24 closing price of RMB 55.9 per share, this implies a dynamic price-to-earnings ratio of 26.9 times for 2026. We maintain a "Buy-A" rating.

Key risks include, but are not limited to: 1) supply exceeding expectations, leading to product price declines; 2) foreign exchange rate fluctuations; 3) deterioration of the competitive landscape; 4) rising raw material costs; 5) overseas policy or investment risks; and 6) shifts in lithium battery technology pathways.