Equity Research: Lianhong New Materials (003022.SZ)

Date: April 7, 2026
Sector: Power Equipment / Photovoltaic Materials & Chemical New Materials
Rating: OUTPERFORM (Maintained)
Current Price: CNY 19.45
Target Price: Implied via Valuation Multiples (See Analysis)
Market Cap: CNY 25.98 Billion
Analysts: Jiaxiong Wu (S1300523070001), Yang Li (S1300523080002)

Executive Summary

Lianhong New Materials (003022.SZ) has demonstrated a robust recovery in profitability alongside steady top-line growth, driven by the successful ramp-up of new capacities and optimized product mix. Following the release of its 2025 Annual Report, we observe a 30.40% year-over-year (YoY) increase in net profit attributable to shareholders, reaching CNY 306 million, despite a modest 1.11% revenue growth to CNY 6.34 billion. This divergence between revenue and profit growth underscores a significant improvement in operational efficiency and gross margins, which expanded by 220 basis points (bps) YoY to 18.7%.

The company’s strategic pivot towards high-value-added chemical new materials is bearing fruit. The core investment thesis rests on three pillars:
1. Volume-Driven Growth: Total material sales volume increased by 14% YoY to 726,400 tons in 2025, indicating strong downstream demand absorption despite a relatively flat revenue trajectory, suggesting a temporary price pressure that is being offset by volume.
2. Capacity Expansion Cycle: The commissioning of the 200,000-ton/year EVA (Ethylene-Vinyl Acetate) plant in December 2025 and the upcoming 100,000-ton/year POE (Polyolefin Elastomer) project in Q2 2026 position Lianhong to capture the growing demand for advanced photovoltaic encapsulation materials. Additionally, the 4,000-ton/year VC (Vinylene Carbonate) facility for lithium battery electrolytes became operational in late 2025.
3. Future-Proofing via Solid-State Battery Tech: The joint venture with Beijing Weilan to develop key functional materials for solid-state batteries provides a long-term growth optionality beyond traditional liquid electrolyte markets.

In light of these developments, we have revised our earnings forecasts upwards. We now project EPS of CNY 0.47, 0.58, and 0.71 for 2026, 2027, and 2028, respectively (previously CNY 0.43 and 0.52 for 2026/2027). This represents an upward adjustment of 8.6% for 2026 and 12.3% for 2027. The stock currently trades at a forward P/E of 41.6x for 2026, which we deem reasonable given the anticipated earnings CAGR of over 50% through 2028 and the company’s leading position in niche high-barrier chemical segments. We maintain our OUTPERFORM rating.

Key Takeaways

1. Financial Performance Review: Profitability Outpaces Revenue Growth

The 2025 fiscal year marked a turning point for Lianhong New Materials, characterized by a decoupling of revenue stagnation and profit expansion. This dynamic is indicative of a company transitioning from a volume-centric growth phase to a margin-centric optimization phase, supported by the gradual contribution of higher-margin new products.

1.1 Top-Line and Bottom-Line Analysis

• Revenue: Total operating revenue reached CNY 6.338 billion in 2025, representing a slight increase of 1.11% compared to CNY 6.268 billion in 2024. The modest top-line growth reflects a challenging macroeconomic environment and intense competition in certain commodity chemical sectors, which pressured average selling prices (ASPs). However, the stability of revenue amidst a 14% increase in sales volume implies that the company successfully mitigated price erosion through volume expansion.
• Net Profit: Net profit attributable to shareholders surged to CNY 306 million, a 30.40% YoY increase from CNY 234 million in 2024.
• Core Profitability (Non-GAAP): Deducting non-recurring items, the net profit was CNY 303 million, skyrocketing by 64.45% YoY. This significant outperformance of core profit relative to reported net profit suggests that the underlying business operations are generating substantially higher cash flows and operational income, while one-off gains or losses in the previous base year may have distorted the comparison.

Source: Company Annual Report, BOC International Securities Estimates

1.2 Quarterly Trend Analysis (Q4 2025)

The fourth quarter of 2025 continued the positive momentum, although with some sequential moderation in core profits due to seasonal factors or initial ramp-up costs of new facilities.

• Q4 2025 Net Profit: CNY 73 million, up 30.65% YoY and up 2.18% Quarter-on-Quarter (QoQ).
• Q4 2025 Core Net Profit: CNY 71 million, up 104.67% YoY but down 2.47% QoQ.

The dramatic YoY increase in Q4 core profit confirms the structural improvement in the company’s earning power. The slight QoQ decline may be attributed to year-end maintenance, inventory adjustments, or the initial lower utilization rates of the newly commissioned EVA and VC plants in December, which typically incur start-up costs before reaching full efficiency.

1.3 Margin Expansion Drivers

The most critical financial development in 2025 was the expansion of the Gross Margin from 16.5% in 2024 to 18.7% in 2025, an improvement of 220 bps.

• Cost Control: Operating costs grew at a slower rate than revenues in specific high-margin segments.
• Product Mix Shift: Increased proportion of sales from higher-margin specialty resins and fine chemicals.
• Operational Leverage: As fixed costs are spread over a larger production volume (14% volume increase), unit fixed costs declined, enhancing marginal profitability.

2. Operational Analysis: Volume Growth and Segment Performance

Lianhong’s operational strategy focuses on diversifying its product portfolio across three main pillars: New Energy Photovoltaic Materials, Specialty Resins, and Specialty Fine Chemicals. The data from 2025 reveals a balanced growth trajectory with distinct margin profiles for each segment.

2.1 Overall Sales Volume and Revenue Dynamics

• Total Sales Volume: 726,400 tons (+14% YoY).
• Material Segment Revenue: CNY 5.113 billion (+9.79% YoY).
• Material Segment Gross Margin: 22.14% (+134 bps YoY).

The fact that material revenue grew by nearly 10% while total company revenue grew by only 1.1% indicates that other non-material businesses or trading activities may have contracted, or that the "Material" segment is becoming the dominant value driver. The 14% volume growth is a strong indicator of market share gain or successful penetration into new customer bases.

2.2 Segment Breakdown

A. New Energy Photovoltaic Materials (PV Materials)
* Sales Volume: 207,100 tons.
* Revenue: CNY 1.731 billion (+2.95% YoY).
* Gross Margin: 27.76% (-22 bps YoY).

Analysis: This segment remains the highest margin contributor. The slight decline in margin (-0.22%) despite revenue growth suggests mild pricing pressure in the PV supply chain, a common trend in the mature phases of solar technology cycles. However, maintaining a ~28% margin in a competitive PV material landscape is testament to Lianhong’s cost advantages and product quality. The volume stability here is crucial as the company prepares to flood the market with new EVA and POE capacity in 2026.

B. Specialty Resins
* Sales Volume: 268,500 tons.
* Revenue: CNY 1.732 billion (+0.76% YoY).
* Gross Margin: 16.20% (+82 bps YoY).

Analysis: Specialty resins represent the largest volume segment. The marginal revenue growth (+0.76%) coupled with a significant margin expansion (+0.82%) indicates successful product upgrading or a shift towards higher-grade resin applications (e.g., in consumer electronics or automotive interiors) rather than commodity-grade plastics. This segment acts as a cash cow, providing stable cash flows to fund R&D and new capacity.

C. Specialty Fine Chemicals
* Sales Volume: 138,100 tons.
* Revenue: CNY 1.081 billion (+0.04% YoY).
* Gross Margin: 20.20% (+52 bps YoY).

Analysis: This segment includes the newly ramped-up lithium battery materials. The flat revenue growth masks the underlying transition; older chemical products may be seeing declining volumes, offset by the rapid uptake of new battery additives like VC. The margin improvement (+0.52%) reflects the higher value-add of these new chemical formulations.

3. Strategic Capacity Expansion: The 2026-2028 Growth Engine

The core bullish case for Lianhong New Materials is anchored in its aggressive and well-timed capacity expansion plan. The company is not merely expanding volume but is strategically moving up the value chain into imported-substitution and next-generation technology materials.

3.1 Photovoltaic Materials: EVA and POE Ramp-Up

The photovoltaic industry is undergoing a technological shift from standard PERC cells to N-type TOPCon and HJT cells, which require higher-performance encapsulation materials. Specifically, there is a growing demand for POE (Polyolefin Elastomer) and EPE (EVA-POE-EVA) composite films due to their superior water vapor barrier properties and anti-PID (Potential Induced Degradation) performance.

• 200,000 Ton/Year EVA Plant:

  • Status: Successfully commissioned in December 2025.
  • Impact: This facility significantly boosts Lianhong’s position as a leading domestic EVA supplier. Given that the plant came online at the very end of the year, its full financial contribution will be realized in 2026. We expect this to drive the projected 36.3% revenue growth in 2026.
  • Market Context: Domestic supply of high-quality EVA has been tight, and Lianhong’s expansion helps alleviate reliance on imports while capturing domestic market share.

• 100,000 Ton/Year POE Project:

  • Status: Expected to commence production in Q2 2026.
  • Strategic Importance: POE has historically been a monopoly of foreign giants (such as Dow, Mitsui, and LG Chem). Domestic substitution is a national strategic priority in China’s chemical sector. Lianhong’s entry into POE production places it at the forefront of this import substitution wave.
  • Margin Potential: POE commands a significantly higher premium than standard EVA. As this capacity ramps up in H2 2026 and fully contributes in 2027, it is expected to be a major driver of gross margin expansion, potentially pushing blended margins above the current 22% level in the PV segment.

3.2 Lithium Battery Materials: VC and Solid-State Battery Frontiers

While the lithium battery sector faces overcapacity concerns in mainstream cathode/anode materials, additives and next-generation electrolyte components remain high-growth niches with higher technical barriers.

• 4,000 Ton/Year VC (Vinylene Carbonate) Plant:

  • Status: Completed and put into production in December 2025.
  • Role: VC is a critical film-forming additive in lithium-ion battery electrolytes, essential for stabilizing the SEI (Solid Electrolyte Interphase) layer and extending battery cycle life.
  • Market Position: By integrating VC production, Lianhong moves deeper into the battery supply chain, leveraging its existing customer relationships in the new energy sector.

• Solid-State Battery (SSB) Joint Venture:

  • Partner: Beijing Weilan New Energy Technology Co., Ltd. (a leader in semi-solid and solid-state battery technology).
  • Objective: Joint development of key functional materials for solid-state batteries.
  • Long-Term Optionality: Solid-state batteries are widely regarded as the "holy grail" of EV technology, offering higher energy density and safety. While commercial mass adoption is still a few years away, securing a foothold in the material supply chain for SSBs positions Lianhong as a future-proof player. This partnership reduces R&D risk and accelerates time-to-market for specialized electrolytes and interface materials required for SSBs.

4. Revised Financial Forecasts and Valuation

Based on the 2025 annual results and the visibility provided by the new capacity launches, we have updated our financial model for 2026-2028.

4.1 Earnings Forecast Adjustments

We have raised our earnings per share (EPS) estimates for the next two years, reflecting higher confidence in volume realization and margin resilience.

• 2026 Outlook: We project revenue to jump to CNY 8.64 billion (+36.3% YoY). This surge is primarily driven by the full-year contribution of the 200kt EVA plant and the H2 contribution of the 100kt POE plant. Net profit is expected to more than double to CNY 624 million (+104.1% YoY) due to operating leverage and the higher margin profile of POE.
• 2027 Outlook: Revenue growth moderates to 24.1% as the base effect normalizes, reaching CNY 10.72 billion. Net profit grows to CNY 780 million (+25.1%). The focus shifts to efficiency improvements and market share consolidation.
• 2028 Outlook: We introduce a 2028 forecast, projecting revenue of CNY 12.71 billion (+18.5%) and net profit of CNY 943 million (+20.8%). This assumes stable demand for PV materials and potential early contributions from solid-state battery material commercialization.

4.2 Profitability Trends

Our model anticipates a continuous improvement in profitability ratios:

• Gross Margin: Expected to expand from 18.7% in 2025 to 20.9% in 2026, stabilizing around 21.3% by 2028. This is driven by the higher-margin POE product mix.
• Net Margin: Expected to improve from 4.8% in 2025 to 7.2% in 2026, reflecting better cost control and economies of scale.
• ROE (Return on Equity): Projected to rise from 4.1% in 2025 to 7.9% in 2026 and 10.4% in 2028, indicating more efficient use of shareholder capital as new assets become productive.

4.3 Valuation Analysis

At the current price of CNY 19.45, the valuation metrics are as follows:

• P/E Compression: The stock is trading at a high trailing P/E (85x) due to the depressed earnings base in 2024/2025. However, the forward P/E drops sharply to 41.6x for 2026 and 33.3x for 2027. Given the expected earnings CAGR of ~50% over the next two years, the PEG ratio (Price/Earnings-to-Growth) becomes attractive (approx. 0.8x for 2026-2027).
• Peer Comparison: Compared to peers in the special chemicals and PV materials sector, Lianhong’s forward valuation is justified by its unique exposure to POE (a high-barrier product) and its integrated cost structure. Many pure-play EVA producers trade at similar or higher multiples when factoring in growth rates.
• EV/EBITDA: The decline in EV/EBITDA from 44.1x to 24.9x in 2026 highlights the significant cash flow generation potential of the new assets once depreciation stabilizes and EBITDA margins expand.

Risks / Headwinds

While the outlook is positive, investors must consider several structural and cyclical risks that could impact the company’s performance and valuation.

1. Industry Capacity Release and Supply Glut

• Risk: The chemical industry, particularly PV materials like EVA and POE, is capital intensive. There is a risk that multiple competitors may simultaneously bring new capacity online in 2026-2027.
• Impact: If supply outpaces demand growth, it could lead to a price war, compressing gross margins below our forecasts. Specifically, if domestic POE production scales faster than expected without corresponding demand growth from high-end PV module manufacturers, premiums could erode quickly.
• Mitigation: Lianhong’s first-mover advantage in domestic POE and its established customer relationships provide some buffer, but pricing power is never guaranteed in commodity-like cycles.

2. Intense Product Price Competition

• Risk: The PV industry is known for its cyclical boom-and-bust patterns. Currently, the downstream module manufacturers are under pressure to reduce costs, which they pass upstream to material suppliers.
• Impact: Even with volume growth, average selling prices (ASPs) for EVA and VC could decline faster than anticipated, hurting revenue and margin expansion.
• Mitigation: The company’s focus on differentiated products (POE, high-end VC) and cost leadership aims to counteract this, but macro-level deflation in the PV supply chain is a systemic risk.

3. Downstream Demand Uncertainty

• Risk: The growth assumptions rely heavily on sustained high demand for solar installations and electric vehicles (EVs).
  • Solar: Policy changes in key markets (Europe, US, India) or grid connectivity issues in China could slow down PV installation rates.
  • EVs: A slowdown in EV adoption rates globally could reduce demand for lithium battery additives (VC) and delay the commercialization timeline for solid-state batteries.
• Impact: Lower-than-expected utilization rates for the new 200kt EVA and 100kt POE plants would severely impact ROI and earnings forecasts.

4. Raw Material and Energy Price Volatility

• Risk: Lianhong’s primary raw materials include ethylene, vinyl acetate, and other petroleum-derived feedstocks. Energy costs (coal, electricity) are also significant inputs.
• Impact: A sharp spike in crude oil prices or domestic energy costs would increase COGS (Cost of Goods Sold). If the company cannot pass these costs onto customers due to weak demand, margins will contract.
• Mitigation: The company employs hedging strategies and long-term supply contracts, but complete insulation from commodity volatility is impossible.

5. Photovoltaic Policy and Trade Risks

• Risk: The PV industry is highly sensitive to government subsidies, trade tariffs (e.g., anti-dumping duties in the US/EU), and carbon credit policies.
• Impact: Adverse policy shifts in major export markets could restrict access to high-margin overseas customers, forcing Lianhong to compete more fiercely in the lower-margin domestic market.

6. Technological Disruption in Batteries

• Risk: The joint venture with Beijing Weilan focuses on solid-state batteries. However, the timeline for mass commercialization of SSBs is uncertain. Alternative battery technologies (e.g., Sodium-ion, Lithium-Sulfur) could emerge as competitors.
• Impact: If SSB adoption is delayed beyond 2030, the R&D investments and specialized capacity may yield lower returns in the medium term.

Rating / Sector Outlook

Sector Outlook: Overweight on High-Barrier Chemical New Materials

The broader Power Equipment and Photovoltaic Materials sector is undergoing a consolidation phase. While generic manufacturing capacity is facing oversupply, specialized, high-barrier materials remain in structural deficit or are poised for import substitution.

• Photovoltaic Materials: The shift to N-type cells (TOPCon/HJT) is accelerating the replacement of standard EVA with POE and EPE films. This technological upgrade creates a multi-year growth runway for companies with POE production capabilities. We view this as a structural tailwind for Lianhong.
• Chemical New Materials: The Chinese government’s emphasis on "self-sufficiency" in critical chemical materials (like POE and high-end electronic chemicals) provides policy support and potential subsidies for leaders like Lianhong.
• Battery Materials: While the general lithium sector is correcting, additives and next-gen electrolyte components retain higher moats. The link to solid-state battery development adds a "tech option" value to traditional chemical stocks.

Sector Rating: Outperform the Market. We prefer companies with integrated chains, proprietary technology (like POE synthesis), and diversified downstream exposure (PV + Battery + Consumer).

Company Rating: OUTPERFORM (Maintained)

We maintain our OUTPERFORM rating on Lianhong New Materials (003022.SZ).

• Rationale:

  1. Earnings Visibility: The commissioning of major projects (EVA, POE, VC) provides clear visibility for revenue and profit growth in 2026-2027.
  2. Valuation Appeal: The forward P/E of 41.6x (2026E) is reasonable for a company expected to deliver >100% earnings growth in 2026 and >25% in 2027. The PEG ratio supports the current valuation.
  3. Strategic Moat: Entry into POE production breaks foreign monopolies and establishes Lianhong as a tier-1 supplier for next-gen PV modules.
  4. Improved Financial Health: Rising ROE and expanding margins indicate successful execution of the high-end transformation strategy.

• Price Target Implication: Based on a target P/E of 45-50x on 2026E EPS (reflecting a premium for POE scarcity and growth), the implied price range would be CNY 21.15 – CNY 23.50. This offers an upside potential of 8% - 20% from the current price of CNY 19.45, aligning with the "Outperform" definition (10-20% upside relative to benchmark).

Investment View

Core Investment Logic

Lianhong New Materials represents a compelling investment opportunity in the intersection of green energy transition and chemical import substitution. The company is successfully executing a "Volume + Value" dual-drive strategy.

1. From Cyclical to Structural Growth: Historically, chemical stocks are viewed as purely cyclical. However, Lianhong’s move into POE and solid-state battery materials introduces a structural growth component. POE is not just a commodity; it is a technologically complex polymer with high barriers to entry (catalyst technology, process know-how). This grants Lianhong pricing power and margin resilience that pure commodity players lack.
2. Operational Turning Point Confirmed: The 2025 annual report confirms that the company has navigated the trough of the previous cycle. The 30% profit growth despite flat revenue proves that the internal cost structure and product mix optimization are working. The 2026-2028 period is not about "hope" but about the mechanical execution of already-built capacity.
3. Optionality on Solid-State Batteries: The partnership with Beijing Weilan is a low-cost, high-potential call option on the future of EVs. Even if SSBs take longer to mature, being part of the ecosystem ensures Lianhong stays relevant in the battery conversation, preventing obsolescence.

Key Catalysts to Watch

Investors should monitor the following catalysts in the coming quarters:

1. Q1-Q2 2026 Production Data: Confirmation of utilization rates for the 200kt EVA plant and the successful startup of the 100kt POE plant in Q2. Any delays here would be a negative signal.
2. POE Pricing Trends: Monitoring the spread between POE and standard EVA. A widening spread would boost margins more than expected.
3. Downstream Module Orders: Signs of increased procurement of POE/EPE films by major PV module makers (e.g., Longi, Jinko, Trina) for their N-type product lines.
4. Solid-State Battery Milestones: Any announcements from Beijing Weilan regarding pilot lines or OEM partnerships for SSBs would re-rate Lianhong’s valuation multiple.

Conclusion

Lianhong New Materials is well-positioned to capitalize on the next wave of growth in the photovoltaic and new energy sectors. The company has demonstrated resilience in a challenging 2025, delivering strong profit growth through operational excellence. With significant new capacity coming online in 2026, specifically in the high-value POE segment, the company is set for a period of accelerated earnings growth.

While risks related to capacity oversupply and raw material prices persist, the company’s strategic focus on high-barrier materials and its strong balance sheet provide a adequate cushion. At current valuations, the stock offers an attractive risk-reward profile for institutional investors seeking exposure to the advanced materials side of the green energy transition. We recommend accumulating shares on dips, with a medium-to-long-term horizon to capture the full benefit of the POE ramp-up.

Appendix: Detailed Financial Analysis

1. Income Statement Deep Dive

The projected income statement highlights the operating leverage inherent in Lianhong’s business model. As revenue scales from CNY 6.34 billion (2025) to CNY 8.64 billion (2026), fixed costs (depreciation, administrative overhead) do not scale linearly, leading to disproportionate profit growth.

• Revenue Growth Drivers:

  • 2026: +36.3% driven by EVA full-year contribution and POE H2 contribution.
  • 2027: +24.1% driven by POE full-year contribution and volume growth in VC/Fine Chemicals.
  • 2028: +18.5% driven by organic growth and potential new product introductions.

• Cost Structure:

  • COGS: Expected to grow at a slower rate than revenue (2026 COGS growth implied ~25% vs Revenue growth 36%), leading to gross margin expansion.
  • Operating Expenses: Selling expenses remain low (0.5% of sales), indicating strong customer stickiness. R&D expenses are maintained at ~5% of sales, ensuring continuous innovation. Administrative expenses are controlled at ~6.5%.

• Taxation: The effective tax rate is projected to stabilize around 10-12%, benefiting from high-tech enterprise incentives and R&D super-deductions.

2. Balance Sheet Strength and Capital Allocation

Lianhong’s balance sheet reflects a company in heavy investment mode, transitioning to a harvest phase.

• Asset Base: Total assets grew to CNY 24.57 billion in 2025, driven by fixed asset additions (PP&E rose to CNY 8.38 billion). In 2026, PP&E is expected to jump to CNY 13.0 billion, reflecting the capitalization of the new EVA/POE/VC plants.
• Liabilities:
  • Debt Levels: The debt-to-asset ratio is around 0.7. Long-term borrowings increased to CNY 8.05 billion in 2025 to fund capex.
  • Deleveraging Trend: From 2027 onwards, as capex slows (projected capex drops from CNY 4.2 billion in 2025 to CNY 0.8 billion in 2027), the company is expected to start paying down debt, reducing financial expenses and improving net income.
• Working Capital: Inventory levels have risen (CNY 973 million in 2025), which is typical ahead of new product launches. Efficient management of receivables (DSO ~33 days) indicates strong bargaining power with downstream clients.

3. Cash Flow Analysis

• Operating Cash Flow (OCF): OCF was CNY 587 million in 2025. It is projected to surge to CNY 1.5 billion in 2026 and CNY 3.08 billion in 2027. This robust cash generation will be critical for servicing debt and funding future dividends.
• Investing Cash Flow: Heavy outflows in 2024-2025 (CNY 3-4 billion annually) for capex are tapering off. By 2027, investing outflows drop to CNY 793 million, signaling the end of the major expansion cycle.
• Free Cash Flow (FCF): The company is expected to turn strongly FCF positive in 2026-2027, supporting the projected increase in dividend payouts (Dividend Yield rising to 1.1% by 2028).

4. Sensitivity Analysis

To assess the robustness of our thesis, we consider the following sensitivity scenarios for 2026 EPS:

Even in the Bear Case, the P/E remains below 50x, which is historically acceptable for high-growth chemical material stocks in China, provided the long-term POE story remains intact.

Final Remarks

Lianhong New Materials is executing a textbook example of industrial upgrading. By moving from generic chemicals to specialized, high-barrier materials like POE and solid-state battery components, it is reshaping its valuation logic from a cyclical commodity player to a growth-oriented technology material supplier. The 2025 annual report serves as validation of this strategy, showing that the company can deliver profit growth even in a flat revenue environment. With the major capacity hurdles cleared and production commencing, 2026 promises to be a year of significant financial inflection. Institutional investors should view the current valuation as an entry point to capture the multi-year earnings expansion driven by the POE revolution and the broader new energy transition.

Disclaimer: This report is prepared by BOC International Securities for institutional clients only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities. The information contained herein is based on sources believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. Investors should conduct their own independent research and consult with financial advisors before making investment decisions. Past performance is not indicative of future results.