Equity Research: Haiyou New Materials (688680.SH)

3Q25 Earnings Review: Navigating Cyclical Headwinds in PV; Automotive Materials Emerge as Strategic Growth Engine

Date: November 02, 2025
Rating: Outperform (Maintained)
Current Price: CNY 45.05
Target Price: N/A (Valuation based on forward multiples)
Analysts: Zeng Duohong, Guo Yanan, Yu Huiyong | Dongwu Securities Institute

Executive Summary

Haiyou New Materials (688680.SH), a leading manufacturer of photovoltaic (PV) encapsulation films, released its third-quarter financial results for 2025. The report reflects a company in transition, grappling with severe cyclical downturns in the core solar sector while successfully cultivating a high-potential second growth curve in automotive smart materials.

Key Financial Highlights for 3Q25:
* Revenue Contraction: Total revenue for 1Q-3Q 2025 stood at CNY 870 million, a year-over-year (YoY) decline of 57.62%. In 3Q25 alone, revenue fell to CNY 237 million, down 58.03% YoY and 25.44% quarter-over-quarter (QoQ).
* Profitability Pressure & Improvement Trend: Net profit attributable to shareholders for 1Q-3Q was a loss of CNY 208 million, representing a narrow improvement of 16.43% YoY compared to the previous year’s losses. For 3Q25 specifically, the net loss was CNY 75 million, improving by 32.43% YoY and showing a slight sequential improvement of 1.50% QoQ.
* Margin Dynamics: Gross margin for 3Q25 was -6.67%, reflecting intense price competition in the PV film market and inventory write-downs. However, the sequential stabilization of losses suggests that the worst of the pricing pressure may be passing.
* Strategic Pivot: The most significant development is the breakthrough in the non-PV business segment. The company’s switchable dimming film has been adopted in high-end automotive projects, including the Yangwang U8L and Mercedes-Benz V260 aftermarket programs. This diversification is critical to de-risking the company’s reliance on the volatile solar supply chain.

Investment Thesis Update:
We maintain our "Outperform" rating on Haiyou New Materials. While the near-term outlook for the PV encapsulation film business remains challenged due to oversupply and muted module demand, we observe early signs of stabilization heading into 4Q25. More importantly, the successful commercialization of automotive dimming films provides a tangible catalyst for long-term valuation re-rating. We have adjusted our earnings forecasts to reflect the deeper-than-expected trough in 2025 PV margins but raised our 2027 estimates to account for the accelerating contribution from the automotive materials segment.

The investment case now hinges less on pure PV volume recovery and more on the company’s ability to execute its diversification strategy. With a robust balance sheet relative to peers and improving operational cash flow management, Haiyou is well-positioned to survive the current industry consolidation phase and emerge as a diversified materials platform.

Key Takeaways

1. 3Q25 Operational Analysis: Volume Compression and Price Erosion

The third quarter of 2025 was characterized by a dual squeeze on both volume and price within the core PV encapsulation film business. Understanding the drivers behind this contraction is essential for modeling the trajectory of 4Q25 and beyond.

A. Revenue Decline Drivers
The 25.44% QoQ decline in 3Q25 revenue (to CNY 237 million) was driven by two primary factors:

1. Demand-Side Slowdown: Downstream PV module manufacturers experienced a slowdown in demand during 3Q25. This is consistent with broader industry trends where global installation rates faced temporary headwinds due to inventory digestion in Europe and policy uncertainties in key markets. As a supplier, Haiyou’s shipments are directly correlated with module production schedules.
2. Supply-Side Discipline: Crucially, the revenue drop was not solely demand-driven. Haiyou actively adopted a conservative shipment strategy, deliberately controlling the volume of film exports. In a market characterized by negative gross margins, shipping more volume often translates to larger absolute losses. By restricting supply, management aimed to mitigate cash burn and avoid exacerbating the industry-wide price war. This strategic restraint indicates a shift from "market share at all costs" to "profitability preservation," a mature response to cyclical downturns.

B. Pricing Environment
Pricing pressure remained acute throughout the quarter:
* July-August Dip: Encapsulation film prices continued their downward trend in July and August, hitting seasonal lows.
* September Stabilization: Prices began to show signs of回暖 (recovery/warming) in late September. However, because the average selling price (ASP) for the entire quarter is weighted across all three months, the 3Q25 average ASP remained lower than that of 2Q25.
* Impact on Margins: The lag between raw material costs (EVA/POE resin) and finished film prices, combined with the low ASP, resulted in a gross margin of -6.67% for 3Q25. This represents a YoY decline of 3.60 percentage points (pct) and a QoQ decline of 4.88 pct. The negative margin underscores the severity of the competitive landscape, where many smaller players are likely operating below cash cost, forcing incumbents like Haiyou to absorb short-term pain to maintain customer relationships and market position.

C. Outlook for 4Q25: Sequential Improvement Expected
Looking ahead to the fourth quarter, we anticipate a modest but meaningful improvement in both shipment volumes and profitability:
* Price Transmission: The price recovery observed in late September is expected to fully reflect in 4Q25 averages. As contract prices reset for the new quarter, the ASP should rise, narrowing the gap between cost and revenue.
* Seasonal Demand: Historically, 4Q is the peak season for PV installations globally, particularly in China and Europe, as developers rush to meet annual targets. This should stimulate module production and, consequently, film demand.
* Inventory Health: The company’s inventory levels have been optimized (discussed in Section 3), reducing the burden of high-cost legacy stock. This allows newer, potentially lower-cost or better-priced production to flow through the P&L more efficiently.

2. The Second Growth Curve: Automotive Materials Breakthrough

Perhaps the most compelling aspect of this earnings report is the validation of Haiyou’s diversification strategy into non-PV applications, specifically switchable dimming films for the automotive sector. This business line is transitioning from R&D/pilot stages to commercial mass production, offering a high-margin counterbalance to the commoditized PV film business.

A. Strategic Significance
The PV industry is inherently cyclical, with periods of extreme overcapacity eroding profitability. By entering the automotive supply chain, Haiyou is accessing a market with:
* Higher Barriers to Entry: Automotive qualifications (such as IATF 16949) are rigorous and time-consuming, creating a moat against low-cost competitors.
* Stickier Customer Relationships: Once qualified, suppliers tend to remain with OEMs for the lifecycle of the vehicle platform (5-7 years).
* Premium Valuation Multiples: Automotive technology companies typically command higher P/E ratios than traditional manufacturing firms due to perceived innovation and stability.

B. Recent Commercial Milestones
In 3Q25, Haiyou achieved significant commercial wins:
* Yangwang U8L: The company’s dimming film was successfully integrated into the roof of the Yangwang U8L, a premium electric SUV under BYD’s luxury brand. This placement signals that Haiyou’s product meets the exacting standards of top-tier Chinese EV manufacturers.
* Mercedes-Benz V260 Aftermarket: The film was also adopted for the aftermarket roof projects of the Mercedes-Benz V260. Success in the aftermarket, particularly for luxury brands, demonstrates product reliability and aesthetic quality, which can serve as a reference for future OEM direct contracts.

C. Capacity Expansion Roadmap
To support this growing demand, Haiyou is scaling its production capabilities strategically:
* Current Status: As of the end of October 2025, the installed capacity for dimming films stands at 200,000 square meters.
* Phase 1 Expansion: The company expects to commission its first major expansion phase, adding 1 million square meters of capacity, in 2026. This timing aligns with the anticipated ramp-up in orders from existing and new automotive clients.
* Phase 2 Optionality: A second phase of another 1 million square meters is planned, but its construction will be contingent on market demand. This flexible approach minimizes capital expenditure risk and ensures that capacity additions are matched by confirmed orders, preserving return on invested capital (ROIC).

D. Financial Contribution Potential
While the absolute revenue contribution from automotive materials in 2025 is still small relative to the PV business, the margin profile is significantly superior. As the scale increases in 2026 and 2027, this segment is projected to become a primary driver of gross profit growth. Our revised earnings model assumes a gradual but accelerating contribution from this segment, which supports our upward revision of the 2027 net profit forecast.

3. Financial Health: Expense Management and Cash Flow Resilience

Despite the top-line contraction, Haiyou has demonstrated disciplined financial management, particularly in working capital and expense control.

A. Operating Expenses and Leverage
* Absolute Expense Reduction: In 3Q25, total period expenses amounted to CNY 58 million, a YoY decrease of 3.78%. This indicates that the company is actively cutting discretionary spending and optimizing operational efficiency in response to lower revenues.
* Expense Ratio Expansion: However, due to the sharp decline in revenue, the expense ratio (operating expenses as a % of revenue) expanded to 24.31% in 3Q25. This represents a YoY increase of 13.71 pct and a QoQ increase of 7.24 pct. While this looks concerning on the surface, it is largely a mathematical artifact of the denominator effect. As revenue stabilizes and grows in 4Q25 and 2026, this ratio is expected to normalize.
* R&D Commitment: Notably, the company has maintained its focus on research and development. R&D expenses remain a priority, ensuring that the technological edge in both PV films (e.g., thinner, more durable formulations) and automotive films is preserved.

B. Cash Flow and Working Capital
* Operating Cash Flow (OCF): For the first nine months of 2025, net operating cash flow was CNY 275 million, a remarkable YoY increase of 144.69%. This positive cash generation amidst net losses highlights effective working capital management.
* 3Q25 Specifics: In 3Q25 alone, OCF was CNY 97 million, though this was a YoY decline of 59.83% and QoQ decline of 27.35%. The sequential drop may reflect timing differences in receivables collections or payments to suppliers, but the cumulative YTD strength remains a key credit positive.
* Inventory Optimization: Inventory levels have been aggressively reduced. As of 3Q25, inventory stood at CNY 119 million, a YoY decline of 50.29%. This destocking is crucial for two reasons:
1. It reduces the risk of further inventory write-downs if prices continue to fall.
2. It frees up cash that was previously tied up in raw materials and finished goods.
* Contract Liabilities: Contract liabilities (advance payments from customers) were CNY 1.86 million, down 45.53% YoY. This reflects the weaker bargaining power in the current buyer’s market but also aligns with the lower overall order book volume.

C. Balance Sheet Strength
* Asset Structure: Total assets decreased to CNY 2.62 billion (2025E) from CNY 3.22 billion (2024A), primarily due to the reduction in current assets (inventory and receivables).
* Liability Management: The company has managed its debt profile prudently. Short-term borrowings are projected to decrease significantly in 2025E (from CNY 508 million in 2024A to CNY 186 million in 2025E), reducing interest burden and refinancing risk.
* Equity Position: Shareholders' equity is estimated at CNY 1.36 billion in 2025E. With a debt-to-asset ratio of approximately 48%, the company maintains a moderate leverage level, providing sufficient financial flexibility to fund the upcoming capacity expansions for the automotive business without excessive dilution or debt stress.

4. Revised Earnings Forecasts and Valuation Logic

Based on the 3Q25 results and our updated view on the PV cycle and automotive ramp-up, we have adjusted our financial projections for 2025-2027.

A. Forecast Adjustments

Note: Old estimates referenced from prior consensus/internal models for comparison.

Rationale for Changes:
1. 2025 Downgrade: We have significantly lowered our 2025 net profit estimate from a loss of ~CNY 90 million to a loss of CNY 242.7 million. This reflects the prolonged intensity of price competition in the PV film sector and the deeper-than-anticipated margin compression in 3Q25. The assumption of a quicker recovery in 2H25 has been tempered by the persistent weakness in module demand and the lag in price transmission.
2. 2026 Maintenance: We largely maintain our 2026 profit forecast at CNY 48.8 million. We expect the PV business to return to breakeven or slight profitability as the industry clears excess capacity and prices stabilize. The contribution from the initial phase of automotive film capacity will begin to offset remaining PV weaknesses.
3. 2027 Upgrade: We have raised our 2027 net profit estimate from CNY 140 million to CNY 190.7 million. This upgrade is driven by:
* Full utilization of the 1 million sqm automotive film capacity.
* Potential initiation of Phase 2 automotive capacity if demand surges.
* A normalized, healthy margin profile in the PV business as the cycle turns.
* Higher visibility on long-term contracts with automotive OEMs.

B. Valuation Perspective

• Current Valuation: At the current price of CNY 45.05, the stock trades at a P/B ratio of approximately 3.06x (based on LF book value of CNY 14.75). Given the current net losses, P/E multiples are negative and thus less informative for near-term valuation.
• Forward Valuation: Looking to 2027, when the company is expected to generate robust profits of CNY 190 million, the forward P/E would be approximately 19.3x (based on EPS of CNY 2.27).
• Peer Comparison: Traditional PV material suppliers often trade at lower multiples (10-15x) during downcycles. However, Haiyou’s emerging identity as an automotive materials supplier warrants a premium. Comparable automotive component/material companies often trade at 20-30x forward earnings.
• Sum-of-the-Parts (SOTP) Logic: Investors should begin to value Haiyou using a SOTP approach:
  1. PV Business: Valued at a cyclical low multiple, reflecting its cash-cow potential once stabilized.
  2. Automotive Business: Valued at a growth multiple, reflecting the high CAGR expected from 2025-2027.
     As the automotive revenue share grows, the blended multiple should expand, supporting the "Outperform" rating.

Risks / Headwinds

While the long-term thesis is intact, investors must be aware of several near-to-medium-term risks that could impact the stock price and fundamental performance.

1. Intensifying Competition in PV Encapsulation Films

• Price War Persistence: The PV industry is currently in a phase of aggressive consolidation. If major competitors decide to prioritize market share over profitability, they may continue to sell films below cash cost. This could prolong the period of negative gross margins for Haiyou, leading to deeper losses in 2025 and potentially into 2026.
• Technological Disruption: The rapid shift towards N-type cells (TOPCon, HJT) requires specific encapsulation materials (e.g., POE/EPE films). If Haiyou fails to keep pace with the technical requirements or if competitors offer superior cost-performance ratios for these advanced films, it could lose share in the high-margin segments of the PV market.

2. Demand Uncertainty in Global Solar Markets

• Policy Risks: Trade barriers, such as tariffs or anti-dumping investigations in the US, Europe, or India, could disrupt export channels for Chinese module makers, indirectly reducing demand for Haiyou’s films.
• Installation Delays: High interest rates in key markets can delay utility-scale solar projects. If global installation growth falls short of expectations, the anticipated 4Q25 and 2026 recovery in module production may be muted.

3. Execution Risk in Automotive Materials

• Qualification Delays: The automotive supply chain is notorious for long qualification cycles. Any delays in certifying the dimming films for new OEM platforms could push revenue recognition further out, impacting the 2026-2027 growth trajectory.
• Capacity Utilization: The planned 1 million sqm expansion in 2026 is significant. If customer orders do not materialize as expected, the company could face underutilized capacity, leading to higher fixed costs per unit and dragging down overall profitability.
• Competition in Smart Glass: The switchable dimming film market is attracting attention from other material science companies. Increased competition could erode the premium pricing power Haiyou currently enjoys in this niche.

4. Raw Material Price Volatility

• Resin Costs: The primary raw materials for encapsulation films are EVA and POE resins, which are linked to crude oil and ethylene prices. Significant spikes in raw material costs, if not passed through to customers quickly, can squeeze margins further. Conversely, rapid drops in raw material prices can lead to inventory write-downs, as seen in recent quarters.

5. Financial and Liquidity Risks

• Cash Burn: Although operating cash flow has improved, the company is still reporting net losses. Continued losses could erode the equity base. While the current balance sheet is manageable, any unexpected shock could necessitate equity fundraising, leading to dilution for existing shareholders.
• Receivables Collection: With downstream module makers under financial stress, there is a heightened risk of delayed payments or bad debts. An increase in days sales outstanding (DSO) could strain liquidity despite strong OCF management to date.

Rating / Sector Outlook

Sector Outlook: Photovoltaic Materials

The PV materials sector is currently in the late stage of a downcycle. We observe clear signs of capacity clearing, with smaller, inefficient producers exiting the market. However, the timeline for a full supply-demand rebalance remains uncertain. We expect:
* 2H25: Continued pressure, but with sequential improvement in pricing as inventory levels normalize.
* 2026: A gradual return to profitability for leading players who have survived the cash burn phase. Industry consolidation will likely result in a more oligopolistic structure, benefiting survivors like Haiyou.
* Long-term: Global energy transition trends remain intact, supporting steady long-term demand growth for PV installations.

Sector Outlook: Automotive Smart Materials

This sector is in a high-growth phase. The adoption of smart glass and dimming films in vehicles is transitioning from a luxury novelty to a mainstream feature, driven by consumer demand for enhanced comfort, privacy, and energy efficiency (by reducing AC load).
* Growth Drivers: Rising penetration of panoramic sunroofs in EVs; regulatory pushes for energy-efficient vehicles; consumer preference for customizable cabin environments.
* Competitive Landscape: Currently fragmented, with few players capable of mass-producing high-quality, automotive-grade dimming films. Haiyou is well-positioned to capture a significant share of this emerging market.

Company Rating: Outperform (Maintained)

We maintain our Outperform rating on Haiyou New Materials.
* Why Outperform? Despite the bleak 2025 earnings outlook, the stock price has likely already priced in much of the near-term pain. The key differentiator is the optionality and visibility provided by the automotive business. The successful entry into the supply chains of Yangwang and Mercedes-Benz serves as a powerful validation of the company’s technological capabilities.
* Risk-Reward Profile: The downside is limited by the company’s asset base and the eventual cyclical recovery of the PV business. The upside is leveraged to the successful scaling of the automotive segment, which offers a re-rating opportunity from a "cyclical manufacturer" to a "growth materials platform."
* Investor Suitability: This stock is suitable for investors with a medium-to-long-term horizon (12-24 months) who can tolerate near-term volatility and negative earnings headlines in exchange for exposure to a structural growth story in automotive electronics/materials.

Investment View

Core Investment Logic

1. Cyclical Bottoming in Core PV Business
The most immediate investment thesis is the anticipation of a cyclical turn. The 3Q25 results, while weak, show management’s willingness to sacrifice volume for price stability. The sequential improvement in net loss (from 2Q to 3Q) and the expected price recovery in 4Q suggest that the marginal deterioration has stopped. For contrarian investors, this period of maximum pessimism often presents an attractive entry point for industry leaders. Haiyou’s ability to generate positive operating cash flow even during loss-making periods demonstrates superior operational resilience compared to many peers.

2. Structural Re-rating via Automotive Diversification
The traditional valuation framework for PV film companies is constrained by low margins and high cyclicality. Haiyou is breaking this mold. The automotive dimming film business is not just a side project; it is a strategic pivot that changes the company’s fundamental identity.
* Margin Expansion: Automotive materials typically carry gross margins of 30-40%, significantly higher than the single-digit or negative margins in PV films during downturns. As this revenue mix shifts, the blended gross margin of the company will structurally improve.
* Valuation Multiple Expansion: As the market recognizes Haiyou as a dual-engine company, investors will likely apply a higher multiple to the automotive portion of the business. This "sum-of-the-parts" re-rating can drive stock performance even if the PV business remains flat.

3. Proven Execution and Technical Moat
Securing contracts with premium brands like Mercedes-Benz and BYD’s Yangwang is not easy. It requires years of R&D, rigorous testing, and consistent quality control. These wins prove that Haiyou possesses a genuine technical moat. This credibility lowers the customer acquisition cost for future automotive projects and creates a barrier to entry for competitors. The planned capacity expansion is backed by real demand, not speculative hope.

Strategic Recommendations for Investors

For Existing Shareholders:
* Hold: Given the significant adjustment in earnings expectations for 2025, much of the negative news is likely reflected in the current price. Selling now would mean realizing losses at the cyclical bottom. The upcoming catalysts in 4Q25 (price recovery) and 2026 (auto capacity ramp) provide a clear path to recovery.
* Monitor Key Metrics: Watch the gross margin trend in 4Q25 closely. A return to positive gross margins would be a strong confirmation of the turnaround. Also, track announcements regarding new automotive OEM partnerships.

For Potential New Investors:
* Accumulate on Weakness: The current environment offers an opportunity to build a position in a high-quality asset at a distressed valuation. Consider dollar-cost averaging to mitigate timing risk associated with the volatile PV sector.
* Focus on the Long Term: Do not be deterred by the 2025 net loss. Focus on the 2026-2027 trajectory where the automotive business begins to contribute meaningfully to profits. The investment horizon should be aligned with the capacity expansion timeline (2026-2027).

For Institutional Allocators:
* Thematic Play: Haiyou fits well into portfolios focused on "Energy Transition 2.0" – moving beyond simple solar/wind generation to advanced materials and efficiency technologies. It also serves as a play on the "Smart Cockpit" theme in the EV sector.
* Risk Management: Given the binary nature of the turnaround, position sizing should be managed carefully. Hedging strategies using broader PV sector ETFs could help isolate the alpha generated by Haiyou’s specific automotive success from the beta of the general solar market.

Conclusion

Haiyou New Materials is at a pivotal juncture. The 3Q25 earnings report confirms the depth of the challenge in the PV sector but also highlights the resilience of the company’s management and the promise of its diversification strategy. While the near-term financials are ugly, the strategic developments are beautiful. The successful penetration of the automotive supply chain is a game-changer that provides a credible path to sustainable, high-quality growth.

We believe the market is currently undervaluing the potential of the automotive materials business and over-penalizing the temporary distress in the PV segment. As the PV cycle stabilizes and the automotive revenue scales, Haiyou is poised for a significant earnings and valuation recovery. Therefore, we maintain our Outperform rating, viewing the current weakness as a buying opportunity for long-term oriented investors.

Appendix: Detailed Financial Analysis & Data Tables

(Note: All figures are in CNY Millions unless otherwise stated. Data sourced from Dongwu Securities Institute estimates and Company Reports.)

1. Income Statement Analysis (Historical & Forecast)

Analysis: The table illustrates the dramatic contraction in 2025, with revenue halving and margins turning negative. However, the recovery in 2026 and 2027 is projected to be robust, with gross margins expanding to >14% as the product mix improves and pricing normalizes. The swing from a CNY 243 million loss in 2025 to a CNY 191 million profit in 2027 represents a massive operational turnaround.

2. Balance Sheet Highlights

Analysis: The balance sheet is shrinking in 2025 as the company works down inventory and receivables. This deleveraging improves financial stability. The increase in fixed assets in 2026-2027 reflects the CAPEX for the new automotive film production lines. The debt-to-asset ratio remains stable around 50%, indicating a balanced capital structure.

3. Cash Flow Statement Overview

Analysis: The strong positive OCF in 2025E (CNY 611 million) is driven by the massive reduction in working capital (inventory and receivables). However, this is a one-time benefit. In 2026 and 2027, as the business grows, OCF turns negative due to the need to rebuild inventory and fund receivables for higher sales volumes, as well as increased CAPEX. This is a typical pattern for a company transitioning from destocking to growth.

4. Key Valuation Metrics

Analysis: The P/B ratio of ~3x is reasonable for a technology-enabled materials company with growth options. The forward P/E of 19.3x in 2027 is attractive given the expected earnings CAGR from 2025-2027. The improvement in ROE and ROIC from negative to double digits by 2027 confirms the effectiveness of the strategic pivot.

Final Remarks

Haiyou New Materials presents a classic "turnaround + growth option" investment case. The market is currently focused on the pain of the PV downcycle, but astute investors should look through to the emerging strength in automotive materials. The 3Q25 report, while financially weak, strategically strong. The maintenance of the "Outperform" rating reflects our confidence in management’s ability to navigate the storm and capitalize on the next wave of growth.

Disclaimer: This report is for institutional investors only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities. Past performance is not indicative of future results. Investors should conduct their own due diligence and consult with financial advisors before making investment decisions. The analysts certify that the views expressed in this report accurately reflect their personal views about the subject company and its securities.