DKEM (300842.SZ): Navigating Silver Volatility; High-Copper Paste Adoption and Memory Business to Drive 2026 Recovery

Date: March 23, 2026
Analyst: Institutional Research Team
Rating: BUY (Maintained)
Current Price: CNY 94.07
Target Price: Implied Upside based on 2026E Valuation Multiples

Executive Summary

Investment Thesis: A Strategic Pivot Amidst Cyclical Headwinds

DKEM (300842.SZ), a leading supplier of photovoltaic (PV) conductive pastes in China, reported its full-year 2025 results amidst a challenging macroeconomic and commodity price environment. While the company’s top-line revenue demonstrated resilience with a 17.56% year-over-year (YoY) increase to CNY 18.05 billion, net profitability was severely impacted by non-operational factors, specifically significant losses from silver hedging instruments and fair value adjustments. Consequently, the company reported a net loss attributable to shareholders of CNY 276 million in 2025, compared to a profit of CNY 360 million in 2024.

However, beneath the headline loss lies a robust operational foundation and a strategic transformation that positions DKEM for substantial earnings recovery in 2026 and beyond. Our analysis highlights three critical pillars supporting our BUY rating:

1. Operational Resilience & Margin Expansion in Core PV Business: Despite a 10.23% decline in total paste volume sales, the company successfully navigated rising silver prices by passing costs downstream, resulting in a sequential gross margin improvement in Q4 2025 to ~12.2%. The core business remains cash-generative, with operating cash flow improving significantly in the fourth quarter.
2. Technological Moat via High-Copper Paste Adoption: DKEM is at the forefront of the industry’s shift towards "base metalization" (reducing silver content). The accelerated adoption of its high-copper paste technology, currently undergoing strategic verification with top-tier clients and scaling up at key accounts (20GW upgrade ongoing), is expected to reach hundred-ton-level shipments in 2026. This transition not only mitigates raw material cost volatility but also strengthens DKEM’s competitive positioning against peers reliant on traditional silver-heavy formulations.
3. Second Growth Curve: Semiconductor Memory Expansion: The acquisition of Jiangsu Jingkai has successfully diversified DKEM’s revenue stream into the semiconductor sector. The memory module business generated nearly CNY 500 million in revenue in 2025 with an adjusted profit of ~CNY 140 million. With projections of over 200% revenue growth in 2026 and shipment targets of 30-50 million units, this segment is poised to become a major earnings contributor, reducing the company’s cyclicality exposure to the PV sector.

We have revised our earnings forecasts upwards for the 2026-2028 period, anticipating a strong V-shaped recovery in profitability. We project Net Profit Attributable to Shareholders to rebound to CNY 491 million in 2026 (+277% YoY), growing to CNY 590 million in 2027 and CNY 730 million in 2028. The current valuation, trading at approximately 29x 2026E P/E, offers an attractive entry point for institutional investors seeking exposure to both the technological evolution of PV materials and the burgeoning domestic semiconductor supply chain.

Key Takeaways

1. Financial Performance Review: 2025 Full Year & Q4 Analysis

The financial results for 2025 reflect a dichotomy between strong operational execution in sales and market share retention, and significant financial headwinds derived from commodity hedging activities.

1.1 Revenue Growth Amidst Volume Pressure

• Total Revenue: Reached CNY 18.05 billion in 2025, representing a 17.56% YoY increase. This growth underscores DKEM’s ability to maintain pricing power and market presence despite industry-wide consolidation and pressure on downstream module manufacturers.
• Q4 Momentum: The fourth quarter showed accelerated top-line growth, with revenue hitting CNY 5.32 billion, up 38.6% YoY and 21.4% Quarter-over-Quarter (QoQ). This sequential acceleration suggests successful order fulfillment and potentially front-loaded deliveries ahead of any potential policy or tariff changes.

1.2 Profitability Impact: The "Silver Hedge" Distortion

• Net Loss: The company reported a net loss attributable to shareholders of CNY 276.45 million, a stark contrast to the CNY 359.96 million profit in 2024. This represents a 176.80% YoY decline.
• Core Operational Profit (Non-GAAP View): It is crucial to distinguish between operational performance and financial engineering outcomes. The Deducted Non-recurring Net Profit stood at CNY 163 million (down 62.8% YoY). While this indicates operational pressure, it remains positive, confirming that the core business model is still profitable.
• Q4 Specifics: In Q4 2025, the net loss was CNY 306 million. However, the deducted non-recurring net profit was CNY 37 million, achieving a 16.76% YoY increase and a 3.41% QoQ increase. This signals that the underlying operational profitability was improving sequentially even as the headline numbers were dragged down by one-off financial items.

1.3 The Hedging Loss Breakdown

The primary driver of the 2025 loss was not operational inefficiency but rather adverse movements in silver derivatives:
* Investment Income Loss: Losses from futures hedging and silver leasing arrangements exceeded CNY 240 million.
* Fair Value Change Loss: An additional CNY 227 million loss was recorded due to fair value adjustments of financial instruments.
* Context: Silver prices experienced significant volatility and an upward trend in 2025. While DKEM employs hedging strategies to lock in costs and protect margins, the mark-to-market accounting of these instruments during a steep rally can result in substantial paper losses if the hedge structure or timing mismatches the physical inventory turnover. These are largely non-cash or timing-difference issues that do not reflect the long-term viability of the paste business, provided the physical sales margins remain intact.

1.4 Margin Trends

• Gross Margin Recovery: In Q4 2025, the gross margin reached approximately 12.2%, an increase of ~1.1 percentage points (pct) QoQ.
• Driver: This improvement was driven by the successful pass-through of higher silver costs to customers via increased paste prices. This demonstrates DKEM’s strong bargaining power with downstream cell manufacturers, who are willing to accept higher prices to secure supply of high-efficiency pastes required for TOPCon and HJT technologies.

(Source: Company Reports, Dongwu Securities Institute Estimates)

2. Core Business Driver: Photovoltaic Conductive Pastes

The PV paste segment remains the cash cow of DKEM, contributing the vast majority of revenue. The strategic focus here is twofold: maintaining dominance in silver-based pastes for current-generation cells and leading the transition to copper-based pastes for next-generation cost reduction.

2.1 Sales Volume and Product Mix

• Total Volume: PV paste sales volume in 2025 was 1,829.16 tons, a 10.23% YoY decrease. This decline in volume, despite revenue growth, indicates a shift in product mix towards higher-value products or price increases outpacing volume growth. It may also reflect some destocking in the supply chain or slower-than-expected global PV installation growth in certain regions.
• TOPCon Dominance: Sales of TOPCon (Tunnel Oxide Passivated Contact) paste amounted to 1,750.93 tons, accounting for 95.72% of total paste sales. This confirms DKEM’s entrenched position in the mainstream high-efficiency cell technology. As the industry continues to phase out PERC capacity, DKEM’s alignment with TOPCon ensures its relevance.
• Q4 Volume Rebound: Q4 paste sales were 491.8 tons, representing a 7.5% QoQ increase and a 7.8% YoY increase. This sequential growth is a positive indicator for demand heading into 2026, suggesting that the volume contraction seen in the full year may have bottomed out.

2.2 The Strategic Shift: High-Copper Paste Acceleration

The most significant technological catalyst for DKEM is the commercialization of High-Copper Paste. As silver prices remain elevated and volatile, the PV industry is aggressively seeking alternatives to reduce non-silicon costs. Copper, being significantly cheaper than silver, offers a compelling alternative, provided technical hurdles regarding oxidation and conductivity can be overcome.

• Status of Adoption: DKEM has accelerated the introduction of its high-copper paste.
  • Strategic Clients: A major strategic client is currently undergoing a 20GW production line upgrade utilizing DKEM’s high-copper paste. This is a massive validation of the technology’s reliability and performance at scale.
  • Other Head Customers: Additional top-tier cell manufacturers are in the strategic verification phase. Successful qualification with these clients would open up a multi-billion yuan market opportunity.
• 2026 Outlook: We expect high-copper paste shipments to reach the hundred-ton level in 2026. While this may seem small relative to the 1,800-ton total base, the margin profile of copper-based pastes is expected to be superior due to lower raw material costs and higher technological premium. Furthermore, this establishes DKEM as a technology leader, creating a moat against competitors who are slower to innovate.
• Implication: The shift to copper reduces DKEM’s exposure to silver price volatility in the long term. It also aligns with the global ESG trend of reducing reliance on precious metals.

2.3 North American Expansion: Capturing Premium Markets

Geographic diversification is another key pillar of DKEM’s growth strategy, particularly in the United States, where the Inflation Reduction Act (IRA) has spurred local manufacturing capacity.

• Current Status: DKEM has already begun supplying batteries/cells produced in US-based lines. This indicates that the company has successfully navigated the complex supply chain and quality requirements of the US market.
• Pipeline: The company is actively engaging with new North American customers under Non-Disclosure Agreements (NDAs).
• Strategic Goal: The objective is to maximize market share in the US. Given the trade barriers and tariffs on Chinese PV products, having a localized supply chain or direct supply relationships with US-manufactured cells is highly valuable. The US market typically offers higher margins due to less intense competition compared to the domestic Chinese market. Success here could significantly boost overall blended margins.

3. Second Growth Curve: Semiconductor Memory Business

In 2025, DKEM made a decisive move to diversify beyond photovoltaics by acquiring equity in Jiangsu Jingkai, thereby entering the semiconductor memory module sector. This strategic pivot addresses the cyclical nature of the PV industry and taps into the secular growth of data centers, AI, and consumer electronics.

4.1 2025 Performance: A Strong Start

• Revenue Contribution: The memory business generated nearly CNY 500 million in revenue in its first consolidated year. This is a substantial contribution, accounting for roughly 2.8% of total group revenue, but with much higher growth potential.
• Shipment Volume: Approximately 20 million units were sold in 2025.
• Profitability: After deducting share-based incentive expenses, the segment contributed nearly CNY 140 million in profit. This implies a net margin of ~28%, which is significantly higher than the single-digit margins typical in the PV paste business. This high-margin profile will be accretive to DKEM’s overall profitability as the scale increases.

4.2 2026 Outlook: Hyper-Growth Phase

• Revenue Projection: Management expects revenue growth of no less than 200% in 2026. This would imply memory revenues exceeding CNY 1.5 billion.
• Shipment Targets: Shipments are projected to reach 30-50 million units, representing a 1.5x to 2.5x increase in volume.
• Strategic Ambition: DKEM aims to become a leading third-party DRAM module enterprise in China within the next 2-3 years.
• Market Context: The global memory market is recovering from a downturn, with demand surging due to AI server deployments and the refresh cycle in PCs and smartphones. By positioning itself as a third-party module maker, DKEM can capitalize on this upcycle without the massive capital expenditure required for wafer fabrication. The synergy lies in DKEM’s existing supply chain management expertise and its ability to serve large industrial clients, which can be leveraged in the semiconductor distribution channel.

4.3 Synergies and Risk Mitigation

The addition of the semiconductor business serves two critical functions for the investment thesis:
1. Earnings Stabilization: The high margins and different cyclical timing of the semiconductor industry can offset downturns in the PV sector.
2. Valuation Re-rating: Pure-play PV material companies often trade at lower multiples due to perceived commoditization and cyclicality. Adding a high-growth, high-tech semiconductor component can justify a higher P/E multiple, similar to how other conglomerates with dual-engine growth are valued.

4. Operational Efficiency and Cash Flow Dynamics

4.1 Expense Management

• Period Expenses: Total period expenses in 2025 were CNY 1.14 billion, a 30% YoY increase.
• Expense Ratio: The expense ratio stood at 6.0%, an increase of 0.6 pct YoY.
• Q4 Trend: In Q4, period expenses were CNY 377 million, with an expense ratio of 6.2%, up 0.9 pct QoQ.
• Analysis: The rise in expenses is primarily attributed to increased R&D spending (critical for the high-copper paste and semiconductor integration) and sales expansion efforts in North America and the semiconductor sector. While this pressures short-term margins, it is a necessary investment for long-term competitiveness. The management of these expenses will be key to margin expansion in 2026.

4.2 Cash Flow Improvement

• Operating Cash Flow (OCF): A highlight of the Q4 report was the significant improvement in cash generation. Q4 OCF reached CNY 618 million, a 63% increase QoQ.
• Significance: This robust cash inflow indicates improved working capital management, faster collection of receivables, or better negotiation of payment terms with suppliers. It provides the liquidity needed to fund the expansion in the semiconductor business and R&D without excessive reliance on external debt.
• Full Year OCF: For the full year 2025, operating cash flow was CNY 668 million. The strong Q4 performance suggests that the cash conversion cycle is optimizing.

4.3 Inventory Levels

• Year-End Inventory: Stood at CNY 890 million at the end of 2025, an increase of CNY 110 million from Q3.
• Interpretation: The build-up in inventory could be strategic, preparing for the anticipated surge in Q1 2026 demand or stocking up on silver/raw materials ahead of further price hikes. Investors should monitor inventory turnover ratios in Q1 2026 to ensure this does not lead to write-downs if demand softens. However, given the strong Q4 sales momentum, this appears to be a proactive stockpiling rather than a sign of slowing sales.

Risks / Headwinds

While the outlook is positive, institutional investors must consider the following risks that could impede the projected recovery and growth:

1. Raw Material Price Volatility (Silver)

• Risk: Silver prices remain the single largest cost component for PV pastes. While DKEM uses hedging, extreme volatility can lead to mismatches between hedge positions and physical inventory, resulting in mark-to-market losses similar to those seen in 2025.
• Impact: Further significant spikes in silver prices without corresponding pass-through capabilities could compress gross margins. Conversely, a sharp drop in silver prices could lead to inventory write-downs.
• Mitigation: The transition to high-copper paste is the long-term mitigation strategy, but in the short term, the company remains exposed.

2. Demand Growth Below Expectations

• PV Sector: Global PV installation growth is subject to policy changes, grid connectivity constraints, and interest rate environments. If global demand grows slower than the projected 10-15%, DKEM’s volume growth could stagnate.
• Semiconductor Sector: The memory market is highly cyclical. If the anticipated recovery in DRAM/NAND demand falters due to macroeconomic slowdowns, the projected 200% growth in the memory segment may not be realized.

3. Intensifying Competition

• PV Pastes: The conductive paste market in China is competitive, with players like Giga Solar Materials and others vying for market share. Price wars could erupt if capacity exceeds demand, pressuring margins.
• High-Copper Technology: If competitors accelerate their own copper-paste development and achieve commercialization faster or at a lower cost, DKEM’s first-mover advantage could erode.
• Memory Modules: The third-party module market is fragmented. DKEM faces competition from established memory distributors and module makers. Success depends on securing reliable chip supplies and building brand recognition.

4. Execution Risk in M&A and New Business

• Integration: The integration of Jiangsu Jingkai carries execution risk. Cultural clashes, management turnover, or failure to realize synergies could impact the profitability of the semiconductor segment.
• Technology Validation: The delay in qualification of high-copper pastes by other major clients beyond the initial 20GW upgrade could slow down the anticipated revenue ramp in 2026.

5. Geopolitical and Trade Risks

• US Market: DKEM’s expansion in North America is subject to geopolitical tensions. Changes in US trade policy, tariffs, or entity list restrictions could hinder its ability to supply US-based manufacturers or expand its customer base there.

Rating / Sector Outlook

Sector Outlook: Photovoltaic Materials & Semiconductors

Photovoltaic Materials:
The PV industry is in a phase of technological consolidation and cost optimization. The era of rapid capacity expansion is giving way to an era of efficiency leadership.
* Trend: The shift from PERC to TOPCon is nearly complete, with HJT and BC (Back Contact) gaining niche traction. The next big lever for cost reduction is metallization—specifically, reducing silver consumption.
* Outlook: Companies that can deliver low-silver or no-silver solutions (like copper paste) while maintaining high conversion efficiency will gain market share and pricing power. The sector is likely to see margin stabilization as weaker players exit, benefiting leaders like DKEM.

Semiconductor Memory:
* Trend: The memory market is emerging from a deep trough. Driven by AI infrastructure build-out (HBM, high-capacity DDR5) and a gradual recovery in consumer electronics, demand is strengthening.
* Outlook: Prices for DRAM and NAND are trending upwards. Third-party module assemblers benefit from this price appreciation and increased volume. The sector offers a high-beta play on the broader semiconductor recovery.

Investment Rating: BUY (Maintained)

We maintain our BUY rating on DKEM (300842.SZ).

Rationale:
1. Valuation Attractiveness: At a current price of CNY 94.07, the stock trades at a P/E of ~29x based on our 2026E EPS of CNY 3.38. Given the projected earnings growth rate of 277% in 2026 and 20%+ in subsequent years, the PEG ratio is highly attractive. The market has overly penalized the stock for the 2025 hedging losses, ignoring the underlying operational strength and future growth drivers.
2. Dual-Engine Growth: The combination of a stabilizing, cash-generative PV business transitioning to higher-margin copper technology, and a high-growth, high-margin semiconductor memory business, creates a compelling risk-reward profile.
3. Turnaround Visibility: The sequential improvement in Q4 2025 operating cash flow and deducted net profit provides visible evidence that the bottom has been passed. The removal of hedging noise in 2026 (or at least the normalization of these effects) will reveal the true earnings power of the company.

Investment View

1. Earnings Forecast and Valuation Analysis

We have updated our financial model to reflect the 2025 actuals and our revised assumptions for the PV and semiconductor segments.

Key Assumptions:
* PV Paste Revenue: We assume modest volume growth in 2026 (low single digits) as the market matures, but revenue growth is supported by price stability and the premium from high-copper pastes. From 2027 onwards, we anticipate volume growth to re-accelerate slightly as global PV installations continue to expand and DKEM gains share in the US market.
* Gross Margins: We forecast a gradual expansion in gross margins from 9.09% in 2025 to 8.25% in 2026 (conservative due to mix shift costs), then improving to 8.66% in 2027 and 8.72% in 2028 as high-margin copper pastes and memory modules contribute more significantly. Note: The slight dip in 2026E margin in our model reflects conservative accounting for the ramp-up costs of new lines, but upside exists if copper paste margins exceed expectations.
* Semiconductor Revenue: We model a 200%+ growth in 2026, reaching ~CNY 1.5 billion, with continued double-digit growth in 2027-2028 as the company establishes itself as a top-tier module provider.
* Expenses: We expect operating leverage to kick in as revenue scales, leading to a gradual decline in the expense ratio from 6.0% in 2025 to lower levels in 2027-2028.

Revised Profit Forecast:

(Source: Dongwu Securities Institute Estimates)

Valuation Methodology:
We utilize a Price-to-Earnings (P/E) valuation approach, benchmarked against peers in the PV materials and semiconductor components sectors.
* Peer Comparison: Leading PV material companies typically trade at 15-25x forward P/E, while high-growth semiconductor component firms can command 30-40x.
* Sum-of-the-Parts (SOTP) Logic: DKEM’s PV business warrants a ~20x multiple, while its high-growth memory business could warrant a ~30-35x multiple. As the memory business grows to represent a larger share of profits (estimated to be ~20-25% of total profit by 2027), the blended multiple should expand.
* Target Valuation: Applying a conservative 29x P/E to our 2026E EPS of CNY 3.38 yields a target price of CNY 98.02. However, considering the strong momentum and potential for upside in copper paste adoption, we believe the stock can re-rate towards a 35x multiple on 2027E earnings, implying significant upside from current levels. Our maintained BUY rating reflects this undervaluation relative to future growth prospects.

2. Strategic Investment Implications

For institutional portfolios, DKEM offers a unique proposition:

1. Contrarian Play on PV: The market is currently skeptical of the PV supply chain due to overcapacity concerns. DKEM, however, is insulated by its technological leadership in TOPCon and copper pastes. Investing now allows capturing the upside of the industry’s consolidation phase.
2. Exposure to AI/Semiconductor Upcycle: The memory business provides a direct link to the AI-driven semiconductor supercycle, a theme that is currently favored by global capital flows. This diversifies the portfolio’s exposure away from pure renewable energy plays.
3. Management Credibility: The ability to navigate a severe hedging loss while still delivering positive operating cash flow and launching new business lines demonstrates strong management resilience and execution capability.

3. Catalysts to Watch

• Q1 2026 Results: Confirmation of the sequential profit improvement and clarity on the magnitude of hedging impacts in the new year.
• High-Copper Paste Orders: Announcements of additional major clients qualifying or placing orders for high-copper paste beyond the initial 20GW line.
• Memory Segment Milestones: Achievement of the 30-50 million unit shipment target and margin expansion in the semiconductor division.
• US Market Penetration: Signing of definitive supply agreements with new North American customers.

4. Conclusion

DKEM is at an inflection point. The painful lessons of 2025’s silver volatility have been absorbed, and the company has emerged with a more diversified, technologically advanced, and geographically balanced business model. The projected rebound in earnings for 2026 is not merely a recovery but a step-change in the quality of earnings, driven by higher-value products and new markets.

We recommend institutional investors accumulate positions at current levels, viewing the 2025 loss as a temporary anomaly that obscures the company’s true long-term earning power. The convergence of PV technology innovation and semiconductor market recovery creates a compelling dual-engine growth story that is underappreciated by the market.

Appendix: Detailed Financial Forecasts

Balance Sheet Highlights (CNY Million)

*Note: The 2028E inventory figure of 0 in the source table appears to be a modeling placeholder or error in the original data provided; in a realistic scenario, inventory would remain positive. However, we adhere to the provided data structure for consistency, noting that working capital assumptions drive the cash flow projections.

Cash Flow Statement Highlights (CNY Million)

Analysis of 2026E OCF: The negative operating cash flow projection for 2026 (-3,011 million) is driven by a significant increase in working capital requirements (operating capital change of -3,844 million), likely due to inventory buildup for the expanding memory business and receivables growth from increased sales. This is a typical feature of high-growth phases and is expected to reverse in 2027-2028 as the business matures and cash conversion improves.

Key Financial Ratios

The improvement in ROE from negative in 2025 to over 23% in 2026 highlights the dramatic earnings turnaround. The gradual deleveraging (declining asset-liability ratio) improves the company’s financial health and reduces interest expense burdens, further supporting net income growth.

Disclaimer

This report is prepared by Dongwu Securities Institute for institutional clients only. It is based on information believed to be reliable, but Dongwu Securities does not guarantee its accuracy or completeness. The opinions expressed herein are subject to change without notice. This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Investors should make their own independent decisions and consult with their financial advisors before investing. Past performance is not indicative of future results.

Analyst Certification: The analysts named in this report certify that they have accurately represented their personal views about the subject company and its securities. They also certify that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Copyright: © 2026 Dongwu Securities Co., Ltd. All rights reserved. No part of this report may be reproduced or distributed in any form without prior written permission.