Equity Research: Polymeric Materials (688503.SH)

Date: August 27, 2025
Sector: New Energy / Photovoltaic Materials
Analyst: Institutional Research Team
Current Price: CNY 52.79
Rating: BUY
Target Price Implied Upside: Based on 2025E PE of 31x

Executive Summary

Polymeric Materials (688503.SH) released its interim financial results for the first half of 2025 on August 26, 2025. The company reported a revenue of CNY 6.435 billion, representing a year-over-year (YoY) decline of 4.87%, and a net profit attributable to shareholders of CNY 181 million, a significant YoY decrease of 39.58%. Despite the headline contraction in profitability, the second quarter (2Q25) demonstrated sequential resilience, with revenue rising 14.93% quarter-over-quarter (QoQ) to CNY 3.441 billion and net profit increasing slightly by 1.51% QoQ to CNY 91 million. These figures align with market expectations, suggesting that the worst of the operational pressure may have passed.

The core investment thesis remains intact despite short-term headwinds. The decline in H1 2025 performance was primarily driven by the broader photovoltaic (PV) industry’s profitability crunch, which led to extended payment cycles and increased use of bank acceptance bills, thereby impacting cash flows and necessitating higher credit impairment provisions. However, we observe a clear inflection point in operational quality. Credit impairment provisions narrowed significantly in 2Q25, and the company’s strategic pivot towards high-value-added products is gaining traction.

Polymeric Materials is aggressively constructing a new product matrix, moving beyond traditional silver paste dominance into a multi-technology platform covering TOPCon, HJT, XBC, and Perovskite tandem cells. Key technological breakthroughs include "TOPCon-LECO" high-performance silver paste, anti-UV degradation technologies, and ultra-narrow line width printing techniques that substantially reduce silver consumption per wafer. Furthermore, the company has achieved scaled production of low-silver-content pastes (<30% silver) and solved critical stability bottlenecks for perovskite tandem modules with specialized low-temperature curing pastes.

Beyond the PV sector, the company is successfully diversifying its revenue streams through subsidiaries Jiangju and Delangju. Jiangju has established a robust portfolio in electronic pastes for RF devices, MLCCs, and automotive applications, achieving ton-level monthly shipments. Delangju is making strides in PV module encapsulation adhesives, particularly with its 0BB (Zero Busbar) positioning adhesive, which is now in scaled production, addressing key pain points in BC (Back Contact) module manufacturing.

We adjust our earnings forecasts for 2025-2027 to CNY 411 million, CNY 506 million, and CNY 604 million, respectively. This corresponds to EPS estimates of CNY 1.70, CNY 2.09, and CNY 2.50. At the current share price of CNY 52.79, the stock trades at forward P/E multiples of 31x, 25x, and 21x for 2025, 2026, and 2027, respectively. Given the company’s leading market position, technological moat in next-generation metallization, and successful diversification into non-PV electronic materials, we maintain our BUY rating. We believe the market is underappreciating the long-term value of its R&D pipeline and the impending recovery in industry cash flows.

Key Takeaways

1. Financial Performance: Short-Term Pressure Meets Sequential Stabilization

The first half of 2025 presented a challenging operating environment for Polymeric Materials, reflective of the broader distress in the downstream solar manufacturing sector. However, a granular analysis of the quarterly data reveals signs of stabilization and potential bottoming out.

1.1 Half-Year Results Analysis

• Revenue: H1 2025 revenue stood at CNY 6.435 billion, down 4.87% YoY. This contraction is attributed to lower average selling prices (ASPs) across the PV supply chain and a cautious procurement stance from downstream cell manufacturers who are themselves grappling with margin compression.
• Net Profit: Net profit attributable to the parent company was CNY 181 million, a sharp 39.58% decline YoY. The disproportionate drop in profit relative to revenue highlights the impact of fixed cost leverage and, more critically, increased credit impairment losses due to elongated receivable cycles.
• Profit Margins: The net margin compressed during the period, reflecting the intense competition ("involution") in the PV material sector. However, the company has maintained its gross margin stability through product mix optimization, shifting towards higher-efficiency pastes that command premium pricing.

1.2 Second Quarter Sequential Improvement

The 2Q25 data provides a more optimistic near-term outlook:
* Revenue Rebound: 2Q25 revenue reached CNY 3.441 billion, marking a 14.93% increase from 1Q25. This sequential growth indicates a recovery in shipment volumes as downstream customers restocked and new capacity ramps up.
* Profit Stabilization: Net profit in 2Q25 was CNY 91.00 million, a slight 1.51% increase QoQ. While the absolute growth is modest, the fact that profits stabilized despite the aggressive pricing environment suggests effective cost control and improved operational efficiency.
* Expectation Alignment: The results were in line with consensus estimates, removing uncertainty regarding the extent of the downturn. The market had priced in a deeper contraction; thus, the "beat" on sentiment, if not strictly on numbers, supports the current valuation floor.

(Note: 1H 2024 and 1Q 2025 figures derived from reported YoY/QoQ changes for illustrative context)

2. Operational Health: Cash Flow Volatility and Impairment Inflection

A critical aspect of analyzing material suppliers in the PV chain is working capital management. The H1 2025 report highlights significant stress in cash flows, but also points to an imminent resolution.

2.1 Cash Flow Dynamics

• Operating Cash Flow (OCF): In 2Q25, the net cash flow from operating activities was -CNY 979 million, a drastic 722.69% decline QoQ.
• Root Cause: This negative OCF is not indicative of fundamental business failure but rather a structural shift in payment terms within the PV industry. Downstream PV cell manufacturers, facing their own profitability pressures, have increased the proportion of payments made via Bank Acceptance Bills rather than cash. Additionally, the collection cycle for receivables has lengthened.
• Implication: While this strains short-term liquidity, it is a systemic industry issue. Polymeric Materials, with its strong balance sheet and access to financing, is better positioned than smaller competitors to weather this storm. As the industry consolidates and profitability returns to downstream players, cash payment ratios are expected to improve.

2.2 Credit Impairment Trends

• Impairment Provision: In 2Q25, the company recorded credit impairment losses of CNY 39 million. Crucially, this figure represents a sequential turnaround (improvement) compared to the previous quarter.
• Customer Quality: The company’s customer base is predominantly composed of top-tier PV manufacturers (e.g., Tongwei, Jinko, JA Solar). These "head" enterprises possess stronger balance sheets and lower default risks compared to smaller, tier-2/3 players.
• Outlook: As the PV industry progresses through its "anti-involution" phase—characterized by capacity clearance and price stabilization—the risk of bad debts is expected to diminish. The narrowing of impairment provisions in 2Q25 is a leading indicator that the worst of the credit risk exposure has likely been recognized. We anticipate a further improvement in OCF and a reduction in impairment charges in H2 2025 and 2026.

3. Core Competitiveness: Technological Leadership in PV Metallization

Polymeric Materials’ primary moat lies in its rapid R&D iteration and comprehensive coverage of next-generation PV technologies. The company is not merely a supplier of commodity silver paste but a technology partner enabling efficiency gains for cell manufacturers.

3.1 Full-Scenario Technology Matrix

The company has successfully built a product portfolio that covers all major mainstream and emerging PV cell architectures:
* TOPCon (Tunnel Oxide Passivated Contact): Currently the dominant technology. Polymeric Materials has achieved milestones with "TOPCon-LECO" (Laser Enhanced Contact Optimization) high-performance silver paste. LECO is critical for reducing contact resistance and boosting cell efficiency. The company’s paste contributes to an annual cumulative efficiency gain of +0.2%, a significant metric in an industry where every basis point of efficiency translates to substantial cost savings per watt.
* HJT (Heterojunction): The company continues to refine its low-temperature silver paste offerings for HJT cells, focusing on conductivity and adhesion at lower curing temperatures.
* XBC (Back Contact): With the rise of BC technology (championed by LONGi and Aiko), Polymeric Materials has developed specialized pastes that address the complex metallization patterns required for back-contact designs.
* Perovskite Tandem: Looking further ahead, the company has overcome key bottlenecks in perovskite-silicon tandem cells. Its "Perovskite Tandem Special Paste" achieves stable electrode performance under ultra-low temperature curing conditions ($\leqslant 130^{\circ}C$). This is a critical breakthrough, as perovskite layers are heat-sensitive. This development clears a major obstacle for the industrial-scale mass production of tandem modules, positioning Polymeric Materials as a first-mover in this next-gen segment.

3.2 Cost Reduction Drivers: Silver Consumption & Copper Plating

Silver is the most significant non-silicon cost in PV cell manufacturing. Reducing silver consumption is the single most important driver for downstream adoption of new pastes.

• Ultra-Narrow Line Width Printing: The company’s proprietary printing technology allows for finer grid lines on the cell surface. This reduces the amount of silver required per cell without compromising conductivity, directly lowering the Bill of Materials (BOM) cost for customers.
• Low-Silver Content Pastes: Polymeric Materials has achieved scaled mass production of pastes with less than 30% silver content. This is a significant commercial achievement, demonstrating that performance trade-offs have been minimized.
• Copper Paste Sintering Technology: To further reduce reliance on expensive silver, the company is advancing copper paste technologies. Copper is significantly cheaper but prone to oxidation and diffusion issues. The company’s sintering technology mitigates these risks, offering a viable path to drastic cost reductions. This dual-track approach (optimizing silver + developing copper) ensures the company remains relevant regardless of the ultimate metallization material winner.

3.3 Anti-UV Degradation Technology

Reliability is paramount for PV modules, which must last 25+ years. The company’s "Anti-UV Degradation Silver Paste Technology" enhances the durability of the metal contacts against ultraviolet light exposure. This reduces the risk of potential-induced degradation (PID) and contact failure over time, adding value for module manufacturers who offer long-term performance warranties.

4. Strategic Diversification: Vertical Integration & Horizontal Expansion

Recognizing the cyclical nature of the PV industry, Polymeric Materials is actively diversifying its revenue base through its subsidiaries, Jiangju and Delangju. This strategy reduces dependency on PV silver paste and opens up higher-margin opportunities in the broader electronics and advanced packaging sectors.

4.1 Jiangju: Electronic Paste Platform

Subsidiary Jiangju has evolved into a comprehensive electronic paste platform, moving beyond PV into high-value semiconductor and electronic components.

• Product Portfolio:

  • RF Devices: Pastes for radio frequency components, critical for 5G infrastructure and smartphones.
  • Chip Components: Conductive pastes for Multi-Layer Ceramic Capacitors (MLCCs) and other passive components.
  • PDLC (Polymer Dispersed Liquid Crystal): Conductive materials for smart glass applications (electrically switchable opacity), used in automotive sunroofs, architectural windows, and privacy screens.
  • EC (Electrochromic) Conductive Adhesives: For next-generation smart windows that change tint based on voltage.
  • LTCC (Low-Temperature Co-fired Ceramic): Materials for high-frequency, high-density electronic packaging.
  • High-Performance Thermal Materials: Solutions for heat dissipation in high-power electronics and EVs.

• Commercial Progress:

  • Scaled Production: Jiangju has achieved ton-level monthly shipments, indicating that these products have moved beyond the R&D/pilot stage into commercial viability.
  • Customer Adoption: The products have been successfully introduced into the supply chains of major players in the communications, electronic components, and automotive sectors. This diversification provides a stable revenue stream that is less correlated with the volatile PV cycle.

4.2 Delangju: Advanced Encapsulation & Adhesives

Subsidiary Delangju focuses on auxiliary materials for PV modules and batteries, addressing specific process pain points in new module architectures.

• Key Products:

  • 0BB (Zero Busbar) Positioning Adhesive: As the industry moves towards 0BB technology to reduce silver usage and improve module efficiency, precise positioning of wires is critical. Delangju’s adhesive has achieved scaled mass production with key customers. This is a direct beneficiary of the industry’s shift to 0BB.
  • Insulating Adhesives & Battery Protection Glues: These products solve specific工艺 (process) pain points in BC (Back Contact) modules. BC modules have complex rear-side structures that require precise insulation and protection to prevent short circuits and mechanical damage. Delangju’s novel insulating and protective glues facilitate the industrialization of BC modules.
  • ECA (Electrically Conductive Adhesive): The company has established a performance lead in ECA products, which are used for interconnecting cells without traditional soldering, reducing thermal stress and improving reliability.

• Strategic Value: By providing these "enabling" materials, Polymeric Materials deepens its stickiness with customers. It transitions from being a single-product vendor to a holistic solutions provider for next-gen module manufacturing.

5. Industry Context: The "Anti-Involution" Turning Point

The PV industry in China has been characterized by severe "involution" (hyper-competition) over the past two years, leading to prices falling below cash costs for many manufacturers. However, several indicators suggest a turning point:

• Policy Support: Recent government guidelines aim to curb blind expansion and encourage high-quality development. This includes stricter energy consumption standards and limits on new capacity approvals.
• Capacity Clearance: Less efficient producers are exiting the market or delaying expansions. This supply-side contraction is beginning to stabilize prices.
• Technology Iteration: The rapid shift to TOPCon and the emerging adoption of BC and HJT are forcing a shakeout. Companies that cannot keep up with the technical requirements (like low-silver pastes or LECO compatibility) are losing market share. Polymeric Materials, as a technology leader, is gaining share even in a shrinking or flat market.
• Demand Resilience: Global demand for solar energy remains robust, driven by energy transition goals in Europe, the US, and emerging markets. The bottleneck has been supply-side profitability, not demand.

As the industry moves towards a healthier competitive landscape, leaders like Polymeric Materials will benefit from improved pricing power and better payment terms, reversing the negative cash flow trends seen in H1 2025.

Risks / Headwinds

While the long-term outlook is positive, investors must be aware of the following risks:

1. New Technology Penetration Risk

• Slow Adoption of TOPCon/BC/HJT: If the downstream transition to high-efficiency cell technologies (TOPCon, BC, HJT) slows down due to cost or yield issues, the demand for Polymeric Materials’ premium, high-margin pastes could be delayed.
• Perovskite Uncertainty: While the company has made breakthroughs in perovskite tandem pastes, the commercialization timeline for perovskite modules remains uncertain. Any delays in the industrial scale-up of perovskite technology could defer potential revenue from this segment.

2. R&D Execution Risk

• Technological Obsolescence: The PV industry is technologically dynamic. If competitors develop superior low-silver or copper-based pastes faster, Polymeric Materials could lose its technological edge.
• Copper Paste Challenges: Copper plating and paste technologies face significant hurdles related to oxidation and reliability. Failure to fully resolve these issues at scale could limit the cost-saving benefits promised to customers.

3. Industry Cycle & Pricing Pressure

• Prolonged Price War: If the "anti-involution" measures fail to curb excess capacity, price competition could intensify further, compressing gross margins beyond current levels.
• Silver Price Volatility: As a key raw material, fluctuations in silver prices can impact working capital requirements and margin stability, although pass-through mechanisms exist, they are not always immediate or complete.

4. Customer Concentration & Credit Risk

• Receivables Risk: Despite the improvement in 2Q25, the high proportion of bank acceptance bills and extended payment cycles remain a risk. If any major downstream customer faces financial distress, it could lead to significant bad debt write-offs.
• Concentration: The company relies heavily on a few large PV manufacturers. Loss of a key customer could materially impact revenue.

5. Diversification Execution Risk

• Non-PV Market Entry: Entering the electronic paste market (Jiangju) and adhesive market (Delangju) involves competing with established global players (e.g., DuPont, Heraeus). Success in these markets is not guaranteed, and initial margins may be lower as the company scales.

Rating / Sector Outlook

Sector Outlook: Cautiously Optimistic with Structural Alpha

The Photovoltaic Materials sector is currently in a consolidation phase. The beta (market-wide) returns are limited due to the ongoing cleanup of excess capacity. However, there is significant alpha (individual stock) potential for companies that:
1. Possess superior technology (efficiency gains, cost reduction).
2. Have strong balance sheets to survive the cash flow crunch.
3. Are successfully diversifying into adjacent high-growth markets.

Polymeric Materials fits all three criteria. The sector is expected to see a gradual recovery in profitability starting in late 2025, accelerating in 2026 as capacity constraints ease and demand continues to grow globally.

Valuation Analysis

We employ a relative valuation approach using the Price-to-Earnings (P/E) ratio, complemented by an analysis of historical bands and peer comparisons.

1. Earnings Forecast Adjustments

Based on the H1 2025 results and the latest business developments, we have adjusted our earnings forecasts:

• 2025E: We project a slight decline in net profit (-1.78%) due to the lingering effects of H1 impairment and pricing pressure. However, the second half is expected to show stronger profitability as impairments normalize and high-margin new products gain share.
• 2026E: We forecast a robust 23.18% growth in net profit. This is driven by:
  • Full-year contribution from low-silver and LECO pastes.
  • Recovery in downstream cash flows, reducing impairment needs.
  • Scale-up of non-PV electronic paste businesses (Jiangju).
• 2027E: Continued growth of 19.42% as the company solidifies its position in BC and Perovskite tandem markets.

2. P/E Multiple Analysis

• Current Valuation: At 31.12x 2025E P/E, the stock appears expensive relative to its stagnant 2025 earnings. However, this multiple reflects the "trough" earnings power.
• Forward Valuation: The 25.26x 2026E P/E and 21.15x 2027E P/E are more attractive, especially given the projected >20% earnings growth. A PEG ratio of approximately 1.1 for 2026 is reasonable for a technology leader in a growing sector.
• Peer Comparison: Compared to peers in the PV material space, Polymeric Materials commands a premium due to its higher R&D intensity and successful diversification. Traditional silver paste suppliers often trade at 15-20x P/E, but those with proven next-gen tech (like LECO/BC) justify higher multiples.

3. Historical Band Context

Historically, Polymeric Materials has traded in a P/E band of 20x-40x. The current 31x multiple is in the upper-middle range, reflecting market caution about H1 results but also acknowledging its leadership. As earnings recover in 2026, the multiple will contract naturally, providing upside potential if the market re-rates the stock based on 2026 earnings.

Rating: BUY

We maintain our BUY rating. The current price of CNY 52.79 offers an attractive entry point for long-term investors willing to look through the short-term volatility of H1 2025. The risk-reward profile is favorable given:
1. Limited Downside: The stock has already corrected to reflect the poor H1 sentiment.
2. Significant Upside: Driven by earnings recovery in 2026-2027 and potential re-rating as the PV cycle turns.
3. Strategic Optionality: Value from non-PV diversification is not fully priced in.

Investment View

1. Core Investment Logic: From Cyclical Supplier to Technology Platform

The market often misprices Polymeric Materials as a simple cyclical commodity supplier. Our analysis suggests a fundamental transformation is underway. The company is evolving into a platform-based technology enterprise with three distinct growth engines:

1. Cash Cow (Traditional & TOPCon Silver Paste): Maintains market leadership, generates steady cash flow, and funds R&D. The shift to LECO and low-silver pastes protects margins despite industry deflation.
2. Star Product (BC & HJT Solutions): High-growth segment. The company’s specialized adhesives and pastes for BC modules (via Delangju) and HJT cells are capturing value from the industry’s technological upgrade. This segment offers higher margins and stickier customer relationships.
3. Question Mark/Future Bet (Perovskite & Electronic Pastes): Long-term optionality. The breakthroughs in perovskite tandem pastes and the scaling of electronic pastes (Jiangju) provide exposure to the next decade of energy and electronics innovation. Even small success here can drive significant valuation re-rating.

2. Catalysts for Re-Rating

• H2 2025 Cash Flow Improvement: Investors should closely monitor the Q3 2025 report for signs of improved Operating Cash Flow and reduced impairment provisions. A return to positive OCF would be a major positive signal.
• 0BB & BC Module Adoption Rates: Faster-than-expected adoption of 0BB and BC technologies by major module makers (e.g., LONGi, Aiko) will drive demand for Delangju’s specialized adhesives, boosting non-paste revenue.
• Silver Price Stability: A stabilization or moderate decline in silver prices would ease working capital pressure and improve gross margins.
• New Customer Wins in Electronics: Announcements of major contracts for Jiangju’s electronic pastes in the automotive or consumer electronics sectors would validate the diversification strategy.

3. Strategic Recommendations for Investors

• Accumulate on Weakness: Given the sequential improvement in 2Q25 and the expected inflection in H2, any further price weakness driven by macro sentiment rather than company-specific fundamentals should be viewed as a buying opportunity.
• Focus on 2026 Earnings Visibility: The key to the investment thesis is the 23% earnings growth projected for 2026. Investors should track monthly shipment data and industry capacity utilization rates to confirm this trajectory.
• Monitor R&D Milestones: Keep an eye on announcements regarding perovskite tandem module commercialization and copper paste pilot lines. These are long-term value drivers that differentiate Polymeric Materials from commoditized peers.

4. Comparative Advantage vs. Peers

Polymeric Materials’ breadth of technology and diversification makes it the most resilient and highest-upside play in the PV materials sector.

5. Conclusion

Polymeric Materials is navigating a difficult industry cycle with strategic foresight. While H1 2025 results were weak, they largely reflect industry-wide headwinds rather than company-specific failures. The sequential improvement in 2Q25, the narrowing of credit impairments, and the rapid progress in new product matrices (LECO, 0BB adhesives, electronic pastes) position the company for a strong recovery in 2026 and 2027.

We believe the market is overly focused on the trailing 12-month earnings and underestimating the structural improvements in the company’s business model. The transition from a pure silver paste vendor to a diversified electronic material platform justifies a premium valuation. With a forward P/E of 25x for 2026 and robust earnings growth visibility, we reaffirm our BUY rating. Institutional investors should consider building positions ahead of the anticipated industry upturn in late 2025.

Appendix: Detailed Financial Analysis & Forecasts

A. Income Statement Analysis (CNY Million)

Analysis:
* Revenue Trajectory: After rapid growth in 2023-2024, revenue is expected to flatten/slightly decline in 2026 due to industry consolidation, before returning to modest growth in 2027.
* Margin Expansion: Gross margins are projected to expand from 8.3% in 2025E to 9.2% in 2027E. This is driven by the higher mix of premium products (LECO, BC adhesives) and economies of scale in new businesses.
* Operating Leverage: R&D expenses remain high (approx. 2.2% of sales), reflecting the company’s commitment to innovation. However, as revenue grows, the fixed cost base will be better absorbed, improving EBIT margins from 4.8% to 5.7%.

B. Cash Flow Statement Analysis (CNY Million)

Analysis:
* OCF Turnaround: The model predicts a significant turnaround in Operating Cash Flow, from negative in 2024 to positive CNY 557 million in 2025E and CNY 1,379 million in 2026E. This assumes a normalization of working capital cycles as the industry stabilizes.
* CapEx Discipline: Capital expenditures are kept relatively low (CNY 77-123 million), indicating that the company is not engaging in aggressive capacity expansion, but rather focusing on efficiency and R&D. This supports free cash flow generation.
* Financing: The company is expected to reduce debt in 2026-2027 (negative financing cash flow), strengthening its balance sheet.

C. Balance Sheet Health (CNY Million)

Analysis:
* Asset Quality: Receivables are expected to decrease in 2026E as collection improves. Inventory levels are managed tightly, declining to CNY 695 million by 2027.
* Deleveraging: The Debt-to-Equity ratio is projected to fall from 41.8% in 2024 to 24.2% in 2027. This significant deleveraging reduces financial risk and interest expense, contributing to net profit growth.
* Liquidity: Cash reserves are expected to grow to CNY 1 billion by 2027, providing ample buffer for R&D and potential M&A opportunities.

D. Key Financial Ratios

Analysis:
* ROE Recovery: ROE dips in 2025 due to lower earnings but recovers to nearly 10% by 2027, driven by higher net margins and efficient asset utilization.
* Solvency: The Current Ratio improves significantly, indicating strong short-term liquidity. Interest coverage remains healthy throughout, ensuring no refinancing risks.

Final Remarks

Polymeric Materials stands at a pivotal juncture. The short-term pain of H1 2025 is a necessary cleansing phase for the industry, and the company is emerging stronger, more diversified, and technologically superior. For institutional investors, the current valuation offers a compelling risk-reward profile for a 12-24 month horizon. The key is to look beyond the headline earnings decline and focus on the underlying operational improvements and strategic positioning.

Recommendation: Accumulate on dips. Target price implies significant upside as 2026 earnings materialize.

Disclaimer: This report is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence and consult with financial advisors before making investment decisions. The views expressed herein are subject to change without notice.