Polymeric Materials (688503.SH): Market Share Resilience Amidst Margin Pressure; Strategic Pivot to Next-Gen Technologies

Date: August 31, 2025
Analyst: Institutional Research Team
Rating: BUY (Maintained)
Current Price: CNY 51.01
Target Price Implied Upside: Based on 2026E P/E of 21x, implying significant upside from current levels as earnings recover in H2 2025 and 2026.

Executive Summary

Polymeric Materials (688503.SH), a global leader in photovoltaic (PV) silver paste manufacturing, reported its first-half 2025 financial results on August 31, 2025. The company demonstrated resilience in market share retention despite a challenging macroeconomic environment characterized by intense industry competition and downward pressure on processing fees. While top-line revenue and net profit experienced year-over-year declines in 1H 2025, sequential improvements in the second quarter (2Q 2025) signal a potential inflection point. Specifically, shipment volumes rebounded quarter-on-quarter, and gross margins stabilized, supported by a favorable product mix shift towards high-efficiency N-type cells and successful cost-management initiatives.

The core investment thesis for Polymeric Materials remains anchored in three pillars:
1. Dominant Market Position & Volume Growth: The company continues to consolidate its leadership in the silver paste sector, with N-type paste accounting for 96% of total shipments in 1H 2025. We project full-year 2025 shipments to exceed 2,000 tons, maintaining a stable or slightly increasing market share.
2. Technological Moat in Next-Gen Cells: Polymeric Materials is aggressively expanding its footprint in emerging cell technologies, including Back Contact (BC), Heterojunction (HJT), and copper-based metallization. Breakthroughs in BC P-region pastes (over 50% market share among downstream clients) and the commercialization of low-silver-content HJT pastes position the company to capture value as the industry transitions away from traditional PERC and standard TOPCon architectures.
3. Margin Recovery Trajectory: Although 1H 2025 margins were compressed due to competitive pricing and inventory adjustments, 2Q 2025 data indicates a sequential improvement in per-unit profitability. As the industry moves towards rationalized competition ("anti-involution") in the second half of 2025, we anticipate a restoration of processing fees and overall profitability.

We have adjusted our earnings forecasts for 2025-2027 to reflect the near-term margin compression but maintain a BUY rating. We lower our 2025-2027 attributable net profit estimates to CNY 420 million, CNY 587 million, and CNY 792 million, respectively. This adjustment accounts for the slower-than-expected recovery in processing fees but recognizes the strong volume growth and technological premium. The stock currently trades at a forward P/E of approximately 29x for 2025E, which compresses to an attractive 21x for 2026E and 15.6x for 2027E, offering a compelling risk-reward profile for long-term institutional investors seeking exposure to the PV supply chain's technological upgrade cycle.

Key Takeaways

1. Financial Performance Analysis: 1H 2025 Review

1.1 Revenue and Profitability Trends

In the first half of 2025, Polymeric Materials reported total operating revenue of CNY 6.44 billion, representing a year-over-year (YoY) decline of 4.9%. Attributable net profit stood at CNY 180 million, a significant YoY decrease of 39.6%. The gross margin contracted to 6.9%, down by 4 percentage points (pct) YoY, while the net attributable margin fell to 2.8%, a decline of 1.6 pct YoY.

While the YoY comparisons appear stark, a deeper dive into the quarterly dynamics reveals a stabilizing trend. In 2Q 2025, revenue reached CNY 3.44 billion, down 9.7% YoY but up 14.9% quarter-on-quarter (QoQ). Net profit for 2Q was CNY 90 million, down 59.2% YoY but showing a slight 1.5% QoQ increase. Crucially, the gross margin in 2Q improved to 7.4%, marking a 1.0 pct QoQ expansion, although it remained 5.6 pct lower than the same period last year. The net margin in 2Q was 2.6%, down 3.2 pct YoY but relatively flat QoQ (-0.4 pct).

Note: 1H 2024 and 2Q 2024 figures are derived based on the reported YoY changes and 1H/2Q 2025 actuals.

The divergence between revenue stability and profit decline is primarily attributed to the intense price competition in the PV auxiliary materials sector. Processing fees for silver paste have come under pressure as module manufacturers seek to reduce non-silicon costs. However, the QoQ improvement in gross margin suggests that the worst of the pricing pressure may have passed, or that the company’s product mix optimization is beginning to offset fee reductions.

1.2 Shipment Volume and Product Mix

Shipment data provides a clearer picture of the company’s operational health. In 1H 2025, total silver paste shipments amounted to approximately 930 tons, a YoY decline of roughly 20%. This decline aligns with the broader slowdown in downstream battery production schedules during the early part of the year. However, the structural shift in technology is evident: N-type paste accounted for 96% of total shipments in 1H 2025.

In 2Q 2025, shipments reached 490 tons. While this represents a 20% YoY decline, it marks an 11% QoQ increase from 1Q 2025. More importantly, the share of N-type paste in 2Q rose to 97%, indicating that the company is successfully transitioning its entire volume base to higher-efficiency technologies. The QoQ volume growth in 2Q was driven by increased battery production schedules across the industry and Polymeric Materials’ ability to maintain and slightly expand its market share amidst consolidation.

We estimate the full-year 2025 shipment volume to exceed 2,000 tons. Given the expected ramp-up in global PV installations in the second half of the year, particularly in China and emerging markets, this volume target appears achievable. The company’s market share is expected to remain stable, leveraging its scale advantages and customer stickiness.

1.3 Unit Economics and Profitability Quality

A critical metric for assessing the health of a processing business like Polymeric Materials is the unit profitability. Our analysis estimates that in 2Q 2025, the gross profit per kilogram of silver paste was approximately CNY 518/kg, corresponding to a gross margin of 7.38%. This represents a significant QoQ improvement of CNY 88/kg.

On a net basis, we estimate the net profit per ton to be in the range of CNY 150,000 to CNY 200,000/ton. This level of profitability, while lower than historical peaks, demonstrates resilience. It is important to note that 2Q 2025 results included approximately CNY 40 million in asset impairment and credit impairment losses. Excluding these one-off charges, the underlying operational profitability would have been notably higher. This suggests that the core business engine remains robust, and the reported net profit dip was exacerbated by conservative accounting provisions rather than a fundamental collapse in operating efficiency.

Looking ahead to 2H 2025, we anticipate further improvement in unit economics. As the industry implements measures to curb "involution" (excessive, destructive competition), processing fees are likely to stabilize or modestly recover. Combined with the continued scaling of high-margin N-type and next-gen pastes, the trajectory for margin expansion is positive.

2. Technological Leadership and New Product Deployment

Polymeric Materials’ long-term competitive advantage lies not just in scale, but in its aggressive R&D deployment across next-generation PV technologies. The company has established a comprehensive layout in Back Contact (BC), Heterojunction (HJT), and copper-based metallization, ensuring it remains relevant as the industry evolves beyond standard TOPCon.

2.1 Back Contact (BC) Technology Breakthroughs

BC technology is gaining traction as a premium segment in the high-efficiency cell market, favored for its aesthetic appeal and higher conversion efficiency potential. Polymeric Materials has achieved significant breakthroughs in BC paste formulations:
* P-Region Paste Dominance: The company’s P-region paste for BC cells has secured a market share of over 50% among its downstream customers. This dominant position in a critical component of the BC architecture provides a strong moat and pricing power.
* N-Region Expansion: While the P-region is already mature, the company has also made breakthroughs in N-region pastes for BC cells. This dual capability allows Polymeric Materials to offer complete metallization solutions for BC manufacturers, enhancing customer stickiness and cross-selling opportunities.

The successful penetration of the BC market is crucial as major players like LONGi and Aiko Solar ramp up BC capacity. Polymeric Materials’ early mover advantage here positions it to capture a disproportionate share of the high-margin BC paste market as adoption accelerates in 2025-2026.

2.2 Copper Metallization: The Cost-Reduction Frontier

Silver price volatility remains a key concern for PV manufacturers. Copper electroplating and copper paste technologies offer a pathway to significantly reduce silver consumption. Polymeric Materials is actively developing copper-based solutions:
* Customer Testing & Pilot Shipments: The company’s copper paste products are currently undergoing internal testing at multiple leading downstream clients. Small-scale shipments have already been realized, marking the transition from lab-scale R&D to commercial validation.
* Second-Generation Equipment: In 2H 2025, Polymeric Materials plans to launch its second-generation copper paste application equipment. This integrated approach—providing both the material (paste) and the process equipment—is designed to lower the barrier to adoption for customers and accelerate the commercialization timeline. We expect this to drive incremental shipment volumes in late 2025 and throughout 2026.

2.3 Heterojunction (HJT) Silver-Clad Copper Pastes

For HJT cells, which require high silver loading due to their low-temperature processing constraints, reducing silver content is paramount. Polymeric Materials has achieved mass production of low-silver-content silver-clad copper pastes with silver content of 20% or less.
* Cost Competitiveness: These pastes offer a substantial cost advantage over traditional pure silver pastes while maintaining the conductivity and reliability required for HJT cells.
* Scale-Up: The fact that these products have reached "large-scale mass production" status indicates that technical hurdles related to oxidation and adhesion have been largely resolved. This positions the company as a key supplier for the growing HJT sector, which is expected to gain market share in the utility-scale segment due to its superior temperature coefficient and bifaciality.

2.4 Comprehensive R&D Layout

The company’s strategy is not limited to a single technology path. By simultaneously advancing BC, HJT, and copper metallization, Polymeric Materials hedges against technology risk. Regardless of which next-gen technology dominates the market in the latter half of the decade, Polymeric Materials is positioned to supply the critical metallization materials. This "all-weather" technological portfolio is a key differentiator from competitors who may be focused on a narrower set of solutions.

3. Operational Efficiency and Cash Flow Dynamics

3.1 Expense Management

Despite the revenue headwinds, Polymeric Materials has demonstrated disciplined cost control. Total period expenses in 1H 2025 amounted to CNY 240 million, a YoY decrease of 17.9%. The expense ratio improved to 3.7%, down 0.6 pct YoY.
* 2Q 2025 Expenses: In the second quarter, period expenses were CNY 130 million, down 25.2% YoY and up 12.3% QoQ. The expense ratio for 2Q was 3.7%, improving by 0.8 pct YoY and remaining stable QoQ (-0.1 pct).
* R&D Investment: It is worth noting that while overall expenses decreased, the company continues to invest heavily in R&D (CNY 342 million projected for full-year 2025). This indicates that cost savings were achieved through operational efficiencies and sales/administrative optimizations rather than cutting critical innovation budgets.

3.2 Cash Flow and Working Capital

The cash flow statement reveals the working capital intensity of the business and the impact of industry dynamics.
* Operating Cash Flow (OCF): Net operating cash flow for 1H 2025 was negative CNY 1.1 billion, a YoY decline of 108.6%. In 2Q 2025 alone, OCF was negative CNY 980 million, deteriorating significantly both YoY (-229.6%) and QoQ (-724.9%).
* Drivers of Negative OCF: The negative cash flow is primarily driven by an increase in accounts receivable and inventory buildup, typical in a growing but competitive market where payment terms may extend. The surge in 2Q negative cash flow suggests aggressive stocking or delayed collections from downstream clients facing their own liquidity pressures.
* Inventory Levels: As of the end of 1H 2025, inventory stood at CNY 970 million, an increase of 4.6% from the beginning of the year. While manageable, this requires careful monitoring to avoid impairment risks if silver prices drop sharply or demand slows unexpectedly.
* Capital Expenditure (CapEx): CapEx in 1H 2025 was CNY 140 million, up 64.4% YoY, reflecting investments in new production lines for N-type and next-gen pastes. However, 2Q CapEx slowed to CNY 50 million, down 9% YoY and 42.5% QoQ, suggesting a more measured approach to expansion in the near term.

Investors should view the negative operating cash flow as a cyclical phenomenon rather than a structural defect. As the company scales and if collection periods normalize in 2H 2025, we expect OCF to improve. The balance sheet remains healthy with a debt-to-asset ratio of 49.82% (LF), providing sufficient leverage capacity if needed.

4. Revised Financial Forecasts and Valuation

Based on the 1H 2025 results and our assessment of the industry landscape, we have updated our financial models. We acknowledge the persistent pressure on processing fees and the competitive intensity, leading us to moderate our near-term profit expectations. However, we maintain confidence in the volume growth and the eventual margin recovery driven by technological premiums.

4.1 Earnings Estimates Adjustment

We adjust our attributable net profit forecasts for 2025-2027 as follows:
* 2025E: Lowered to CNY 420 million (previously CNY 496 million). This reflects the lower-than-expected margins in 1H and a cautious view on 2H fee recovery. Growth is estimated at 0.6% YoY.
* 2026E: Lowered to CNY 587 million (previously CNY 623 million). We still project a strong 39.6% YoY growth, driven by volume expansion, higher mix of BC/HJT pastes, and stabilization of processing fees.
* 2027E: Lowered to CNY 792 million (previously CNY 812 million). Expected YoY growth of 35.0%, assuming full commercialization of copper pastes and sustained leadership in N-type markets.

4.2 Valuation Analysis

At the current price of CNY 51.01, Polymeric Materials trades at:
* 29.4x 2025E P/E
* 21.0x 2026E P/E
* 15.6x 2027E P/E

While the 2025E multiple appears elevated, it is important to contextualize this within the company’s growth trajectory. The significant earnings jump expected in 2026 (+39.6%) and 2027 (+35.0%) rapidly de-risks the valuation. The 2026E P/E of 21x is reasonable for a technology leader in the renewable energy sector with a dominant market share and a clear path to new product monetization. Furthermore, the P/B ratio of 2.60x is supported by a robust ROE trajectory, projected to rise from 8.23% in 2025E to 12.21% in 2027E.

Compared to peers in the PV materials space, Polymeric Materials commands a premium due to its superior scale, technological breadth (BC/HJT/Copper), and proven ability to navigate industry cycles. The current valuation offers an attractive entry point for investors willing to look through the temporary 2025 margin compression to the stronger earnings power of 2026-2027.

Risks / Headwinds

While the investment case for Polymeric Materials is strong, institutional investors must consider the following risks that could impact financial performance and stock valuation:

1. Intensifying Industry Competition

The PV silver paste market, while consolidated, remains highly competitive. New entrants or existing competitors may engage in aggressive price wars to gain market share, particularly in the standard N-type TOPCon segment. If processing fees decline faster than anticipated or fail to recover in 2H 2025, gross margins could remain under pressure, negatively impacting our 2025-2026 earnings estimates. The "anti-involution" policy efforts by industry associations are not guaranteed to succeed immediately, and localized overcapacity could persist.

2. Technological Substitution and Adoption Risks

The company’s future growth relies heavily on the successful adoption of BC, HJT, and copper metallization technologies.
* Adoption Speed: If the downstream rollout of BC or HJT cells is slower than expected due to cost or yield issues, the demand for specialized pastes will lag.
* Technology Shifts: Unexpected breakthroughs in alternative metallization techniques (e.g., pure copper plating without paste, or other novel conductive materials) could render current paste technologies obsolete. While Polymeric Materials is investing in copper, the pace of technological change in PV is rapid and unpredictable.
* Customer Qualification: The transition to new pastes requires rigorous qualification by battery makers. Any delays in customer acceptance or failures in field performance could delay revenue recognition from new products.

3. Raw Material Price Volatility

Silver is the primary raw material for PV pastes. While the company typically passes through silver costs to customers via a "silver price + processing fee" model, extreme volatility in silver prices can impact working capital requirements and introduce hedging risks. A sharp drop in silver prices could lead to inventory write-downs, as seen in the 1H 2025 impairments. Conversely, a sharp rise could strain customers’ liquidity, potentially leading to longer payment periods and worsening operating cash flow.

4. Downstream Demand Fluctuations

The company’s fortunes are tied to global PV installation rates. Policy changes in key markets (China, Europe, US), trade barriers (tariffs, anti-dumping investigations), or grid connectivity issues could dampen downstream demand. A slowdown in global PV installations would directly reduce volume growth, making it harder to achieve economies of scale and absorb fixed costs.

5. Cash Flow and Liquidity Management

The significant negative operating cash flow in 1H 2025 highlights liquidity risks. If accounts receivable collection periods continue to lengthen due to financial stress among downstream battery/module manufacturers, the company may face working capital constraints. This could necessitate additional financing, increasing interest expenses, or force a reduction in R&D/CapEx, potentially compromising long-term competitiveness.

6. Policy and Regulatory Uncertainty

Government subsidies and renewable energy targets are key drivers of PV demand. Any rollback of support policies in major markets, or changes in environmental regulations regarding the production or disposal of PV materials, could impact the industry’s growth trajectory. Additionally, geopolitical tensions affecting supply chains (e.g., restrictions on certain chemicals or equipment) could disrupt operations.

Rating / Sector Outlook

Sector Outlook: Consolidation and Technological Upgrading

The global PV industry is currently undergoing a phase of intense consolidation and technological upgrading. The era of rapid, indiscriminate capacity expansion is giving way to a focus on efficiency, cost reduction, and technological differentiation.
* Supply Side: We expect continued exit of inefficient capacity, particularly in the PERC and older TOPCon segments. This should eventually lead to a healthier supply-demand balance and stabilization of processing fees.
* Demand Side: Global PV demand remains robust, driven by energy transition goals, declining LCOE (Levelized Cost of Electricity), and emerging market growth. However, growth rates are normalizing from the hyper-growth phases of previous years.
* Technology Trend: The shift to N-type cells (TOPCon, HJT, BC) is irreversible. Companies that can provide high-quality, cost-effective metallization solutions for these technologies will win market share. Copper metallization is the next frontier for cost reduction, and early movers will benefit.

Company Rating: BUY (Maintained)

We maintain our BUY rating on Polymeric Materials. Despite the near-term earnings miss and margin compression, the company’s fundamental strengths remain intact:
1. Market Leadership: It retains the largest market share in a consolidating industry.
2. Tech Agility: It is ahead of the curve in BC and copper paste development.
3. Valuation Appeal: The stock is priced for modest growth in 2025 but offers significant upside as earnings accelerate in 2026-2027.

The recent pullback in stock price and earnings expectations provides a better risk-reward entry point for long-term investors. We believe the market is overly pessimistic about the duration of margin pressure and underestimates the potential for margin expansion via new product mixes in 2026.

Investment View

Strategic Imperatives for Investors

For institutional investors considering Polymeric Materials, the investment decision should be framed around the following strategic considerations:

1. Look Through the 2025 Noise

The 1H 2025 results reflect the trough of the current competitive cycle. The sequential improvement in 2Q gross margins and shipments suggests that the bottom is near. Investors should focus on the 2026-2027 earnings trajectory, where the combination of volume growth (2,000+ tons) and margin recovery (driven by BC/HJT/Copper mix) drives substantial EPS growth. The current P/E of 29x for 2025 drops to an attractive 21x for 2026, making the stock undervalued relative to its medium-term growth potential.

2. Monitor Key Leading Indicators

To validate the investment thesis, investors should closely track the following metrics in upcoming quarters:
* Processing Fee Trends: Evidence of stabilization or increase in N-type paste processing fees.
* BC/HJT Shipment Mix: The percentage of revenue derived from BC and HJT pastes. An increasing mix will drive margin expansion.
* Copper Paste Commercialization: Progress in customer qualifications and volume shipments of copper pastes in 2H 2025 and 2026.
* Operating Cash Flow: Improvement in OCF in 2H 2025 would signal better working capital management and reduced liquidity risk.

3. Competitive Moat Assessment

Polymeric Materials’ moat is widening due to its comprehensive technology portfolio. Unlike competitors who may excel in only one area (e.g., TOPCon paste), Polymeric Materials offers a full suite of solutions. This reduces customer switching risk and allows the company to capture value across different technology nodes. The >50% share in BC P-region paste is a testament to this technical superiority.

4. Risk-Adjusted Return Profile

Given the risks outlined (competition, tech substitution), the stock is not without volatility. However, the downside is limited by the company’s strong market position and asset base. The upside is significant if the company successfully executes its new product roadmap and if the industry rationalizes faster than expected. We view the risk-reward ratio as favorable for a 12-24 month holding period.

Conclusion

Polymeric Materials stands at a pivotal juncture. It has successfully navigated the transition to N-type dominance and is now positioning itself as a leader in the next wave of PV innovation (BC, HJT, Copper). While 1H 2025 financials were weak, the underlying operational trends—volume recovery, margin stabilization, and technological breakthroughs—point to a brighter future.

We recommend institutional investors accumulate shares at current levels, viewing the 2025 earnings dip as a temporary setback in a long-term growth story. The company’s ability to maintain market share while innovating across multiple technology platforms makes it a core holding for any portfolio exposed to the renewable energy supply chain. As the industry exits the "involution" phase and enters a period of technological monetization, Polymeric Materials is well-positioned to deliver superior shareholder returns.

Appendix: Detailed Financial Tables

Income Statement Forecast (CNY Million)

Balance Sheet Highlights (CNY Million)

Cash Flow Statement Highlights (CNY Million)

Key Valuation Metrics

Source: Wind, Dongwu Securities Institute. Currency: CNY. Forecasts by Dongwu Securities Institute.

Analyst Certification and Disclosure

The analysts responsible for this report, Zeng Duohong, Guo Yanan, and Xu Chengrong, certify that the views expressed in this report accurately reflect their personal views about the subject securities and 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:
* Dongwu Securities Co., Ltd. holds a license for securities investment consulting business approved by the China Securities Regulatory Commission.
* This report is intended solely for the use of Dongwu Securities' clients. It does not constitute an offer or solicitation to buy or sell any securities.
* Dongwu Securities and its affiliates may hold positions in the securities mentioned in this report and may engage in trading or investment banking services with the companies covered.
* Investors should be aware that past performance is not indicative of future results. The securities market involves risks, and investment decisions should be made based on individual risk tolerance and financial situation.

Contact Information:
Dongwu Securities Research Institute
No. 5 Xingyang Street, Suzhou Industrial Park, Suzhou, Jiangsu, 215021, China
Website: http://www.dwzq.com.cn

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