Equity Research: First Applied Material (603806.SH)

Date: March 18, 2026
Sector: Power Equipment / Photovoltaic (PV) Materials
Rating: OUTPERFORM (Maintained)
Current Price: CNY 17.92
Target Price Implied Upside: Significant earnings revision driven by margin expansion

Executive Summary

First Applied Material (603806.SH), the global leader in photovoltaic (PV) encapsulation films, presents a compelling investment opportunity driven by a confluence of favorable supply-side dynamics, raw material price inflation, and structural shifts in global PV manufacturing. We maintain our OUTPERFORM rating on the stock, following a significant upward revision to our earnings forecasts for fiscal years 2026 and 2027.

The core investment thesis rests on three pillars:
1. Margin Expansion via Inventory Gains & Pricing Power: Escalating geopolitical tensions in the Middle East have triggered a sharp rise in methanol prices, subsequently driving up the cost of EVA (Ethylene-Vinyl Acetate) and POE (Polyolefin Elastomer) particles—the primary raw materials for PV films. This cost-push inflation is being successfully passed through to downstream module manufacturers. Crucially, First Applied Material benefits from a "low-cost inventory buffer," allowing it to realize substantial short-term gross margin expansion as it sells older, cheaper inventory against current higher market prices.
2. Industry Consolidation & Competitive Moat: The rising cost of capital and raw materials imposes severe cash flow pressure on smaller, less efficient competitors. This environment accelerates industry consolidation, favoring market leaders like First Applied Material that possess superior cost control, scale, and balance sheet strength. We view the current cycle as a catalyst for long-term competitive landscape optimization.
3. Globalization Premium: As PV manufacturing capacity expands in India, the United States, and Europe to mitigate supply chain concentration risks, First Applied Material is uniquely positioned to capture this growth. Its overseas sales channels command significantly higher gross margins compared to domestic operations, providing a structural uplift to overall profitability as global capacity ramps up.

We have adjusted our EPS forecasts for 2025-2027 to CNY 0.39 / 0.86 / 1.13 (previously CNY 0.39 / 0.74 / 0.99). This reflects a 16.2% upward revision for 2026 and a 14.1% upward revision for 2027. At the current price of CNY 17.92, the stock trades at approximately 20.9x 2026E P/E and 15.9x 2027E P/E, offering an attractive entry point given the projected earnings inflection.

Key Takeaways

1. Raw Material Inflation as a Catalyst, Not a Headwind

Contrary to typical manufacturing logic where input cost inflation compresses margins, the current surge in EVA/POE particle prices is acting as a tailwind for First Applied Material’s near-term profitability.

• Geopolitical Trigger: The escalation of conflicts in the Middle East has disrupted energy and chemical supply chains, leading to a spike in methanol prices. Since methanol is a key precursor in the production of EVA and POE resins, this has directly translated into higher raw material costs for the PV film industry.
• Price Transmission Mechanism:
  • EVA Particles: As of March 11, 2026, quotes for EVA particles reached CNY 10,700/ton, a 9.3% month-on-month (MoM) increase. By March 17, data from Shanghai Metals Market (SMM) indicated further increases to the CNY 12,000–13,000/ton range.
  • PV Films: Correspondingly, POE film prices rose 4.8% MoM to CNY 8.58/sqm, and transparent EVA film prices rose 5.1% MoM to CNY 5.59/sqm.
• Supply-Demand Mismatch: While PV film production schedules are increasing month-on-month to meet demand, the production schedule for PV-grade EVA material has decreased. This divergence creates a temporary but potent supply-demand mismatch, supporting sustained high prices for raw materials and enabling film manufacturers to maintain elevated selling prices.

2. The "Inventory Gain" Phenomenon: Short-Term Profit Surge

The timing of the raw material price hike coincides with First Applied Material holding significant volumes of low-cost inventory. This creates a classic "inventory gain" scenario:

• Mechanism: The company purchases raw materials at historical lower prices. As market prices for finished films rise in response to current expensive raw materials, the company sells its finished goods (produced from cheap inventory) at new, higher market prices.
• Impact on Margins: This arbitrage between historical cost of goods sold (COGS) and current revenue recognition leads to an immediate expansion in gross margins. We view this as a marginal turning point for profitability, marking the end of the margin compression trend seen in late 2024 and early 2025.
• Historical Context: From Q2 2024 to Q3 2025, the company’s gross margin declined from 18.05% to 8.89%. However, net profit margin only declined from 7.48% to 4.80%, demonstrating resilient operational management even during peak stress. With gross margins potentially recovering towards the 20% range, the operating leverage will drive disproportionate growth in net income.

3. Long-Term Competitive Landscape Optimization

While short-term gains are driven by inventory effects, the long-term investment case is strengthened by the structural exit of weaker competitors.

• Cash Flow Pressure on Peers: The sustained high price of EVA and POE particles increases working capital requirements for all manufacturers. Smaller players with limited access to credit or weaker bargaining power face severe liquidity constraints.
• Barrier to Entry: The capital intensity required to maintain sufficient inventory buffers and manage volatile raw material costs raises the barrier to entry.
• Market Share Consolidation: First Applied Material, with its robust balance sheet (Net Cash position) and efficient cost structure, is well-positioned to gain market share as smaller entities struggle or exit. This consolidation enhances the company’s pricing power and stabilizes long-term profitability.
• Management Efficiency: The company’s ability to limit net margin erosion despite significant gross margin compression in the prior year underscores its superior expense control and operational efficiency. This managerial alpha will be magnified in a recovering margin environment.

4. Strategic Beneficiary of Global PV Capacity Expansion

The globalization of PV manufacturing is a secular trend that First Applied Material is strategically aligned to capture.

• Overseas Capacity Boom: Countries including India, the United States, and various European nations are aggressively building domestic PV manufacturing capabilities to reduce reliance on Chinese supply chains and comply with local content requirements (e.g., IRA in the US, PLI in India).
• Higher Overseas Margins: Historically, First Applied Material’s overseas sales have commanded significantly higher gross margins than its domestic Chinese sales. This is due to:
  1. Less intense price competition in emerging markets.
  2. Higher value-added services and logistical premiums.
  3. Currency advantages in certain jurisdictions.
• Global Footprint Advantage: The company’s existing global production layout and established customer relationships with international module makers allow it to rapidly scale supply to these new overseas factories. As the proportion of overseas revenue increases, the blended gross margin of the company is expected to structurally improve.

Financial Analysis & Earnings Revision

Earnings Forecast Adjustments

Based on the aforementioned drivers—specifically the sustainability of film price hikes, the realization of inventory gains, and the accelerating contribution from high-margin overseas sales—we have revised our earnings estimates.

Source: Company Reports, BOC International Securities Estimates

Key Observations on Forecasts:
* 2025E: We maintain our previous estimate for 2025, recognizing that the full benefit of the March 2026 price hikes will primarily impact Q2 2026 onwards. 2025 remains a transition year with modest revenue contraction (-2.7%) and compressed margins (11.5%).
* 2026E: We raise our EPS estimate by 16.2% to CNY 0.86. This reflects the anticipated recovery in gross margins to 15.8% (from 11.5% in 2025) driven by inventory gains and price pass-through. Net profit is expected to more than double (+117.3% YoY) to CNY 2.24 billion.
* 2027E: We raise our EPS estimate by 14.1% to CNY 1.13. This assumes a stabilization of raw material costs at a higher plateau, continued market share gains, and a higher mix of high-margin overseas sales. Gross margin is projected to further expand to 17.1%.

Profitability Trends

The company’s profitability metrics are poised for a V-shaped recovery.

• Gross Margin Recovery: After bottoming out at ~8.89% in Q3 2025, we expect gross margins to rebound sharply in H1 2026. The target of ~20% gross margin is achievable if EVA/POE prices remain elevated and the company effectively manages its inventory turnover.
• Operating Leverage: With revenue expected to grow by 28.4% in 2026, fixed costs (administrative, R&D) will be spread over a larger base. Although we forecast a slight increase in absolute R&D and administrative expenses to support global expansion, the rate of expense growth is lower than revenue growth, leading to operating margin expansion.
• Net Margin Expansion: Net profit margin is forecast to recover from 5.5% in 2025E to 9.4% in 2026E and 10.5% in 2027E. This surpasses the 2023 level of 8.2%, indicating a structurally healthier business model post-consolidation.

Balance Sheet Strength & Cash Flow

First Applied Material maintains a fortress balance sheet, which is a critical competitive advantage in a volatile commodity cycle.

• Liquidity: As of year-end 2024, the company held CNY 5.0 billion in cash and cash equivalents. Total current assets stand at CNY 15.9 billion against current liabilities of only CNY 1.46 billion, resulting in a robust Current Ratio of 10.9x. Even with projected inventory buildup in 2026, the current ratio remains healthy at 6.2x.
• Low Leverage: The debt-to-asset ratio is exceptionally low at ~0.2. Short-term borrowings were reduced to CNY 66 million in 2024 and are projected to be minimal in 2025 before a slight tactical increase in 2026 to fund working capital needs. The net debt-to-equity ratio remains negative (net cash position), providing immense financial flexibility.
• Cash Flow Dynamics:
  • 2024: Strong operating cash flow of CNY 4.39 billion was generated, primarily due to efficient working capital management and collection of receivables.
  • 2025E: Operating cash flow is expected to normalize to CNY 696 million as the company rebuilds inventory levels in anticipation of price rises.
  • 2026E-2027E: As sales accelerate and margins improve, operating cash flow is projected to recover to CNY 423 million in 2026 and CNY 2.36 billion in 2027.
  • CapEx: Capital expenditure is disciplined, projected at CNY 450 million in 2025 and CNY 350 million annually in 2026-2027, focusing on efficiency upgrades and overseas capacity rather than aggressive domestic expansion.

Valuation Analysis

At the current market price of CNY 17.92, the valuation metrics appear attractive relative to the projected earnings growth.

• P/E Compression: The stock is currently trading at a high multiple for 2025 (45.4x) due to depressed earnings. However, the forward P/E for 2026 drops significantly to 20.9x, and to 15.9x for 2027. Given the projected CAGR of net profit from 2025 to 2027 exceeds 70%, the 2026 P/E of ~21x represents a reasonable valuation for a market leader with strong moats and cyclical recovery potential.
• PEG Ratio: Using the 2026-2027 earnings growth rate of ~31.9%, the PEG ratio for 2027 is approximately 0.5x (15.9 / 31.9), suggesting the stock is undervalued relative to its growth trajectory.
• Peer Comparison: Compared to other PV material suppliers who face similar margin pressures but lack the same scale and global footprint, First Applied Material commands a premium. However, this premium is justified by its superior ROE (projected 11.8% in 2026 vs. industry averages often below 8%) and lower financial risk.

Industry Context: The PV Encapsulation Film Sector

To fully appreciate First Applied Material’s position, it is essential to understand the broader dynamics of the PV encapsulation film industry.

1. Product Overview & Importance

PV encapsulation films are critical components in solar modules, serving to protect solar cells from environmental factors (moisture, UV radiation, mechanical stress) and ensure long-term reliability (typically 25+ years).
* EVA Films: The traditional standard, cost-effective, and widely used.
* POE Films: Increasingly preferred for high-efficiency modules (such as TOPCon and HJT) due to superior water vapor barrier properties and resistance to Potential Induced Degradation (PID).
* EPE Films: A composite structure (EVA-POE-EVA) balancing cost and performance.

As the industry shifts towards N-type high-efficiency cells (TOPCon, HJT), the demand for POE and EPE films is growing faster than standard EVA, creating a product mix upgrade opportunity for leaders who can secure POE resin supply.

2. Supply Chain Dynamics

• Upstream (Raw Materials): The industry is heavily dependent on EVA and POE resins. Historically, high-end POE resin technology was monopolized by a few international chemical giants (e.g., Dow, Mitsui, LG Chem). However, Chinese domestic producers are making strides in localization. Despite this, short-term supply shocks (like the current Middle East-driven methanol spike) can cause significant volatility.
• Downstream (Module Makers): The module manufacturing sector is highly consolidated and competitive. Module makers exert strong pressure on film suppliers to reduce costs. However, when raw material costs rise universally, the pass-through mechanism becomes more effective, especially for trusted suppliers like First Applied Material who guarantee supply stability.

3. Competitive Landscape

The PV film industry has undergone significant consolidation.
* First Applied Material (Foster): The undisputed global leader with a market share exceeding 50% in many segments. Its scale allows for superior bargaining power with upstream resin suppliers and downstream module makers.
* Second-Tier Players: Companies like Haiyou New Material, Mingguan New Material, and others compete primarily on price. In a low-margin environment, these players struggle to invest in R&D or maintain adequate inventory buffers.
* Barriers to Entry: High capital requirements for extrusion lines, stringent certification processes by module makers (which can take 1-2 years), and the need for consistent quality control create high barriers. The current cycle of rising raw material costs further raises the financial barrier, deterring new entrants.

4. Globalization Trend

The "China + 1" strategy in PV manufacturing is reshaping the supply chain.
* US Market: The Inflation Reduction Act (IRA) provides subsidies for domestic manufacturing. While Chinese firms face trade barriers, they are exploring joint ventures or licensing models. First Applied Material’s ability to serve global clients outside of direct US exports (e.g., supplying modules made in Southeast Asia or India that may eventually reach the US) is key.
* European Market: The EU’s Net-Zero Industry Act aims to boost local manufacturing. European module makers require reliable, high-quality film suppliers. First Applied Material’s established presence in Europe gives it an edge.
* Indian Market: India’s Production Linked Incentive (PLI) scheme is driving massive capacity additions. Indian module makers are actively seeking partnerships with leading film suppliers to ensure quality. First Applied Material is well-positioned to capture this growing demand.

Company Specific Drivers: Why First Applied Material?

1. Technological Leadership & R&D

First Applied Material consistently invests in R&D (approx. 3.5% of revenue) to stay ahead in product innovation.
* POE/EPE Capability: The company has successfully scaled up production of POE and EPE films, which are critical for the next generation of solar modules. Mastery of POE processing is technically challenging due to the material’s slipperiness and thermal properties. First Applied Material’s expertise here is a significant moat.
* Customization: The ability to customize film formulations for specific module designs (e.g., bifacial modules, lightweight modules) enhances customer stickiness.

2. Cost Control & Operational Excellence

• Scale Economies: As the largest producer, the company enjoys economies of scale in procurement, production, and logistics.
• Energy Efficiency: The company has invested in energy-efficient production lines, reducing utility costs per square meter of film produced.
• Yield Rates: Industry-leading yield rates minimize waste and enhance gross margins. Even a 1% improvement in yield can have a significant impact on bottom-line profitability given the thin margins in the sector.

3. Customer Relationships

First Applied Material supplies nearly all major global module manufacturers, including Longi, JinkoSolar, Trina Solar, Canadian Solar, and increasingly, international players. These long-standing relationships provide visibility into demand trends and allow for collaborative product development. In times of supply shortage, preferred supplier status ensures allocation, reinforcing its market position.

4. Global Production Footprint

While the majority of production remains in China, the company has been strategically expanding its global presence.
* Vietnam/Thailand: Existing facilities in Southeast Asia allow the company to serve customers looking to diversify away from China and mitigate tariff risks.
* Future Expansion: Plans for further overseas capacity (potentially in India or the Middle East, though specific locations are subject to strategic review) align with the global shift in PV manufacturing. This footprint not only reduces logistics costs for overseas customers but also mitigates geopolitical risks associated with a purely China-centric supply chain.

Risks / Headwinds

While the outlook is positive, investors must consider the following risks:

1. Raw Material Price Volatility (Double-Edged Sword)

• Risk: While rising prices currently benefit margins via inventory gains, a continued unchecked surge in EVA/POE prices could eventually dampen downstream demand if module prices become uncompetitive. Furthermore, if raw material prices fall sharply, the company could face inventory write-downs and margin compression as high-cost inventory is sold against lower-priced finished goods.
• Mitigation: The company uses hedging strategies and maintains close relationships with suppliers to smooth out volatility. However, extreme volatility remains a risk.

2. Intense Price Competition

• Risk: If the industry downturn persists longer than expected, second-tier competitors might engage in predatory pricing to maintain cash flow, eroding market prices and margins for everyone.
• Mitigation: First Applied Material’s cost leadership and brand reputation for quality allow it to resist pure price wars. Customers prioritize reliability for long-life assets like solar modules.

3. Slower-than-Expected Global PV Demand

• Risk: Macroeconomic headwinds, high interest rates, or grid connection bottlenecks in key markets (Europe, US) could slow down the installation rate of solar modules, reducing demand for films.
• Mitigation: The long-term trend towards renewable energy is robust. Government mandates and declining LCOE (Levelized Cost of Energy) for solar continue to drive structural demand growth.

4. Geopolitical & Trade Policy Risks

• Risk: Escalating trade tensions, particularly between the US/EU and China, could lead to tariffs or restrictions on Chinese PV materials. While the company has overseas capacity, a significant portion of its revenue is still linked to Chinese-made modules.
• Mitigation: Diversification of production locations and customer base. The company is actively engaging with international policymakers and customers to ensure compliance and maintain market access.

5. Technology Disruption

• Risk: Emergence of new encapsulation technologies or alternative module designs (e.g., glass-glass modules requiring different film specifications, or encapsulant-free technologies) could disrupt the current market.
• Mitigation: First Applied Material’s strong R&D pipeline ensures it is at the forefront of developing new materials for emerging technologies. It is likely to be an early adopter or developer of any next-gen encapsulation solutions.

6. Execution Risk in Overseas Expansion

• Risk: Building and operating factories in new jurisdictions (India, US, etc.) involves regulatory, cultural, and operational challenges. Delays or cost overruns could impact profitability.
• Mitigation: The company is taking a phased approach to expansion, leveraging local partners and experienced management teams to mitigate execution risks.

Investment View

Thesis Recap

First Applied Material stands at a pivotal juncture where cyclical tailwinds (raw material inflation, inventory gains) intersect with structural strengths (market leadership, global expansion, technological superiority). The recent escalation in Middle East tensions, while geopolitically concerning, has inadvertently created a favorable pricing environment for the company’s core products.

The market has arguably underappreciated the magnitude of the margin recovery potential. Our revised forecasts indicate a 117% year-on-year growth in net profit for 2026, driven by a restoration of gross margins to healthy levels (~15.8%) and operational leverage. The stock’s current valuation of 20.9x 2026E P/E is reasonable for a company with such strong earnings momentum and a dominant market position.

Strategic Allocation Recommendation

For institutional investors, First Applied Material offers a unique combination of:
1. Cyclical Play: Immediate upside from the current inventory-driven margin expansion.
2. Secular Growth: Exposure to the long-term global energy transition and the globalization of PV supply chains.
3. Quality Factor: A balance-sheet-strong market leader with proven resilience and management excellence.

We recommend accumulating positions on any dips, with a 12-18 month horizon targeting the realization of the 2026-2027 earnings growth. The stock is well-positioned to outperform the broader Power Equipment sector, which we rate as Stronger than Big Market.

Catalysts to Watch

1. Quarterly Margin Data: Close monitoring of Q2 and Q3 2026 gross margins to confirm the recovery trajectory towards 15-20%.
2. EVA/POE Price Trends: Sustained high prices for raw materials will support film pricing. Any significant drop should be monitored for inventory impairment risks.
3. Overseas Order Book: Announcements of new supply contracts with international module makers (especially in India and the US) would validate the globalization thesis.
4. Competitor Exits: News of capacity closures or financial distress among smaller film manufacturers would signal accelerating market share consolidation.

Appendix: Detailed Financial Tables

Income Statement Summary (CNY Million)

Balance Sheet Summary (CNY Million)

Cash Flow Summary (CNY Million)

Key Financial Ratios

Analyst Certification & Disclosure

Analyst Certification:
The analysts named in this report, Jiaxiong Wu (S1300523070001) and Zhen Gu (S1300525040003), certify that all views expressed herein accurately reflect their personal views about the subject securities or issuers. 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.

Important Disclosures:
* BOC International Securities holds a license for securities investment consulting business.
* This report is intended for institutional clients capable of understanding and assessing the risks involved.
* Rating Definitions:
* OUTPERFORM: Expected to outperform the benchmark index by 10-20% in the next 6-12 months.
* BUY: Expected to outperform the benchmark index by >20%.
* NEUTRAL: Expected to perform within -10% to +10% of the benchmark.
* UNDERPERFORM: Expected to underperform the benchmark by >10%.
* Benchmark Indices: CSI 300 for A-shares; Hang Seng Index for HK shares; NASDAQ/S&P 500 for US shares.

Risk Warning:
This report contains forward-looking statements based on current assumptions and data. Actual results may differ materially due to changes in market conditions, regulatory environments, and company-specific factors. Investors should conduct their own due diligence and consult with financial advisors before making investment decisions. Past performance is not indicative of future results.

Copyright:
© 2026 BOC International Securities Co., Ltd. All rights reserved. This report may not be reproduced, distributed, or published without prior written consent.

Deep Dive: The Mechanics of the "Inventory Gain" Cycle

To provide further clarity for institutional investors on the primary driver of our 2026 earnings upgrade, we elaborate on the mechanics of the inventory gain cycle in the context of First Applied Material’s operations.

1. The Lag Effect in Cost Accounting

In manufacturing accounting, the Cost of Goods Sold (COGS) is typically recognized based on the historical cost of the inventory sold, not the current replacement cost. When raw material prices rise rapidly:
* Revenue: Increases immediately as sales contracts are renegotiated or spot prices rise to reflect current market conditions.
* COGS: Remains lower for a period because it reflects the cost of raw materials purchased weeks or months earlier.
* Result: The spread between Revenue and COGS widens, boosting Gross Profit and Gross Margin.

2. Quantifying the Impact for First Applied Material

• Inventory Levels: As of end-2024, First Applied Material held CNY 1.87 billion in inventory. Assuming a significant portion of this is raw materials (EVA/POE particles) and work-in-progress, a 10-15% increase in raw material prices translates to a potential CNY 180-280 million in unrealized inventory gains.
• Turnover Rate: With an annual revenue of ~CNY 19-23 billion and inventory of ~CNY 2-3 billion, the inventory turnover is roughly 6-8 times per year. This means the entire inventory stack is refreshed every 1.5-2 months.
• Duration of Benefit: The inventory gain effect is most potent during the phase of rising prices. Once prices stabilize at a new high level, COGS will catch up to Revenue, and margins will normalize to a structural level determined by operational efficiency and competitive dynamics.
• Our Assumption: We assume the price surge in March 2026 will benefit Q2 and Q3 2026 significantly. By Q4 2026, margins may stabilize. This is why we project a full-year 2026 gross margin of 15.8%, which is higher than the trough but perhaps slightly below the peak quarterly margins seen in Q2/Q3.

3. Sustainability of Margins Post-Inventory Gain

Investors often worry that profits will collapse once the inventory gain fades. However, we argue for a higher structural margin baseline for two reasons:
* Competitive Exit: As discussed, weaker competitors unable to withstand the cash flow pressure of high raw material costs will exit. This reduces price competition, allowing leaders to maintain healthier margins.
* Product Mix Shift: The ongoing shift towards POE and EPE films, which have higher technical barriers and better margins than standard EVA, supports a higher average selling price (ASP) and margin profile.

Global PV Policy Landscape & Implications for First Applied Material

Understanding the policy environment is crucial for assessing the long-term demand visibility for First Applied Material’s overseas expansion.

1. United States: Inflation Reduction Act (IRA)

• Policy: Provides tax credits (ITC/PTC) for domestic clean energy manufacturing. Additional bonuses for using domestically sourced content.
• Implication: Drives massive investment in US-based module assembly. While direct imports of Chinese films face tariffs (Section 201, AD/CVD), First Applied Material can supply these US-assembled modules via its non-Chinese entities or through joint ventures. The key is to be part of the "friendly" supply chain. The high margins in the US market make this a lucrative segment if access is secured.

2. Europe: Net-Zero Industry Act (NZIA)

• Policy: Aims to manufacture 40% of strategic net-zero technologies domestically by 2030. Includes streamlined permitting and potential subsidies.
• Implication: European module manufacturers (e.g., Meyer Burger, Enel Green Power) are scaling up. They require high-quality, reliable film suppliers. First Applied Material’s established quality record and proximity (via logistics or potential local storage/distribution) give it an advantage over newer, unproven suppliers.

3. India: Production Linked Incentive (PLI)

• Policy: Subsidies for domestic manufacturing of solar modules and cells. Import duties on Chinese modules are high.
• Implication: India is becoming a major hub for module assembly. Indian manufacturers are actively sourcing films. First Applied Material has been actively engaging with Indian clients. Given the scale of India’s ambitions (100GW+ targets), this represents a significant growth vector. The company’s ability to supply from nearby Southeast Asian facilities or potentially set up local distribution centers is key.

4. Middle East: Emerging Hub

• Trend: Countries like Saudi Arabia (NEOM project) and UAE are investing heavily in solar manufacturing and deployment.
• Implication: While currently a smaller market for manufacturing, the region is a growing destination for PV deployment. First Applied Material’s presence in the region could grow both in terms of direct sales and potential future manufacturing partnerships, leveraging the region’s cheap energy costs for production.

Conclusion

First Applied Material (603806.SH) is navigating a complex macroeconomic and geopolitical landscape with remarkable resilience and strategic foresight. The current surge in raw material prices, driven by Middle East tensions, has created a transient but powerful opportunity for margin expansion through inventory gains. More importantly, this environment is accelerating the consolidation of the PV film industry, cementing First Applied Material’s position as the dominant global player.

Coupled with its successful penetration of high-margin overseas markets and its technological leadership in next-generation encapsulation materials, the company is well-positioned for sustained earnings growth. Our upgraded forecasts for 2026 and 2027 reflect this improved outlook. We believe the market has yet to fully price in the magnitude of the earnings recovery and the structural improvements in the company’s profitability profile.

Therefore, we reiterate our OUTPERFORM rating. Institutional investors should consider First Applied Material a core holding in the renewable energy materials sector, offering a compelling blend of cyclical upside and secular growth.

End of Report