Key takeaway

    In 1H26, the company recorded revenue of RMB2.513bn (+16.64%) and net profit attributable to shareholders of the parent company of RMB363mn (+9.36%); in 2Q26 alone, revenue reached RMB1.449bn (+22.83%) and net profit attributable to shareholders of the parent company reached RMB220mn (+12.52% YoY and +55.0% QoQ), showing a significant sequential acceleration in earnings. The company is a leading domestic platform-based functional ceramic materials enterprise. Over the past two decades, leveraging its capabilities in preparing nano-scale, high-purity, and stable-batch inorganic powders, the company has gradually expanded from MLCC dielectric powders, zirconia, and honeycomb ceramics into ceramic substrates, ceramic packages, spherical silicon micropowders, AR high-refractive-index dispersions, sulfide solid-state electrolytes, and other fields. In 1H26, multiple functional ceramic material product lines of the company transitioned from the verification stage to commercial realization. The valuation logic is expected to shift more rapidly from that of a traditional ceramic powder manufacturer to a high-end functional ceramic materials platform in the AI era.

    Event

    On August 5, 2026, the company released its 1H26 report: revenue reached RMB2.513bn, up 16.64% YoY; net profit attributable to shareholders of the parent company reached RMB363mn, up 9.36% YoY; net profit attributable to shareholders of the parent company excluding non-recurring gains and losses reached RMB361mn, up 12.54% YoY; and net cash flow from operating activities reached RMB456mn, up 36.78% YoY. The company also announced its proposed interim profit distribution plan for 2026: it intends to distribute a cash dividend of RMB0.50 per 10 shares, tax inclusive, to all shareholders, based on its total share capital excluding shares repurchased and held in its dedicated share buyback account.

    Quick Take

    Expense-related disruptions weigh on net profit growth in 1H26, while quarterly profit accelerates QoQ in 2Q26

    In 1H26, the company’s overall gross margin was 37.66% (-0.64 pct YoY). In 2Q26 alone, the company recorded revenue of RMB1.449bn (+22.83% YoY and +36.2% QoQ), net profit attributable to shareholders of the parent company of RMB220mn (+12.52% YoY and +55.0% QoQ), and a gross margin of 38.35% (+1.61 pcts QoQ). Both revenue and profit growth accelerated significantly from 1Q26, which we believe was mainly driven by improving demand for core businesses such as MLCC powder and zirconia dental materials. Expense -related disruptions caused the company’s net profit growth to lag revenue growth in 1H26. Administrative expense was approximately RMB190mn (+36.86%), mainly due to increases in share-based payments and intermediary fees related to the acquisition of Australia-based SDI. Higher foreign exchange losses increased financing expense to RMB39mn, versus RMB-10mn in the same period last year, while R&D investment reached RMB165mn (+15.35%) during the period. Net cash flow from operating activities reached RMB456mn (+36.78%).

    Dental materials: Zirconia powder achieves price and volume growth, while premium dental ceramic blocks successfully expand overseas

    The company capitalized on the policy direction of rare earth export controls and leveraged its local rare earth supply advantages to drive rapid growth in the production and sales of dental zirconia powder, while raising product prices in a timely manner based on market supply and demand; its DUO series products and premium aesthetic Aevra ceramic blocks gained broad recognition from overseas customers. In 1H25, the company's biomedical materials segment generated revenue of RMB534mn (+21.96%), with a gross margin of 49.79% (-2.39 pcts YoY). The company's previous acquisition of SDI enhanced Upcera's global presence in dental materials and opened up long-term growth opportunities for its medical consumer segment. The acquisition of Australia's SDI was completed and SDI was delisted on July 7, with its results to be consolidated from 2H25: SDI and Upcera are highly complementary across the entire dental laboratory value chain of “powder–ceramic blocks–all-ceramic crowns,” creating a one-stop supply offering that covers laboratory processing and clinical dentistry; the company can leverage SDI's established global distribution network to sell Upcera's ceramic blocks and crowns, significantly shortening the overseas promotion cycle, while enhancing the earnings stability of the medical segment and contributing incremental high-margin revenue following consolidation.

    MLCC nanopowder: AI and automotive-grade demand drive rapid volume growth in MLCC powder, significantly improving segment profitability

    In 1H25, the electronic materials segment generated revenue of RMB382mn (+11.03%), with a gross margin of 37.62% (+4.65 pcts YoY). Benefiting from a recovery in downstream demand and rapid demand growth in emerging applications such as AI servers and automotive electronics, the company's sales volumes of MLCC dielectric powder and electronic paste increased rapidly; powder for AI servers and automotive-grade applications remains under development and validation, and some capacity expansions have now been completed; in the paste business, the company worked with customers to successfully develop new products such as high-capacitance paste, dedicated automotive-grade paste, and dedicated radio-frequency paste. The company plans to establish 5,000 metric tons of premium powder capacity for AI and automotive -grade applications, of which 2,000 metric tons is scheduled to commence production by the end of 2025 and the remaining 3,000 metric tons is expected to come online by the end of 2026; growing sales of premium powder are expected to drive increases in both segment volume and profit.

    New energy materials: Boehmite production and sales rise rapidly, while the sulfide solid-state electrolyte production line is completed

    In 1H25, the new energy materials segment generated revenue of RMB339mn (+56.48%), with a gross margin of 34.72% (+13.53 pcts YoY), making it the company's fastest-growing segment. Demand for high-purity ultrafine alumina and boehmite used in battery coatings is growing rapidly. Both the company’s powders and slurries can support ultrathin coatings of 1 μm or less. The company is also working with customers to develop more functional products, driving rapid growth in production and sales. In solid-state batteries, the company is strategically focused on the sulfide route. Its product performance has been highly recognized by customers. An automated production line for sulfide solid-state electrolytes has been successfully completed, establishing initial mass-production capacity. Its samples had previously passed validation by leading battery manufacturers including CATL (300750.SZ) and BYD (002594.SZ). The long-term commercialization of solid-state batteries will create substantial market potential for electrolyte materials.

    Precision ceramics: Stable delivery of ceramic packages, growing LED substrate share, and steady progress in multilayer ceramic substrates

    In 1H26, ceramic packages used for RF chip packaging in low-Earth-orbit satellites achieved consistent and stable delivery. The company continued to expand its share of LED substrates among leading international customers, with sales maintaining solid growth. Thermoelectric coolers (TECs) are undergoing validation in close collaboration with international customers. Multilayer ceramic substrates are primarily used in AI data centers, and the company is conducting joint R&D and product validation with customers. The performance of the company’s silicon nitride ceramic balls has reached an interna tionally advanced level, and the company is actively expanding into emerging applications such as embodied intelligence. The ceramic sleeves and ferrules produced by Shenzhen Air Innovation Materials are mainly used in high-speed optical modules. The company has mastered full-process technologies spanning powder forming through precision structural component processing. As one of the few domestic manufacturers with integrated capabilities spanning upstream high-purity powders to metallized substrate manufacturing, the company is well positioned to benefit from expanding demand for AI computing-power cooling and low-Earth-orbit satellite packaging.

    Catalytic materials: Deeper import substitution of honeycomb ceramics and rapid sales growth of ceria-zirconia solid solutions

    In 1H, the catalytic materials segment generated revenue of RMB488mn (+7.02%), with a gross margin of 44.36% (+2.56 pcts YoY). Sales of honeycomb ceramic substrates maintained steady growth, while the import substitution trend strengthened further. In the passenger vehicle market, the company has achieved nearly full coverage of domestic proprietary automotive brands. In the commercial vehicle market, it continued to deepen domestic partnerships and actively worked with leading international automakers and OEMs to expand into overseas markets. As the technical pathways for China 7 emission standards become clearer, the company is actively collaborating with customers on preliminary technology research and product preparation. Cerium-zirconium solid solutions benefited from rising demand from leading domestic and overseas customers, with sales volume continuing to grow rapidly. Products with higher oxygen storage and release capacity have initially passed downstream customer validation.

    Digital printing and emerging materials: Ceramic inks gain market share despite pressure, while CCL spherical silica and high-refractive-index dispersions ramp up

    In 1H25, the digital printing and other materials segment generated revenue of RMB576mn (+18.40%), wi th a gross margin of 26.27% (down 11.68 pcts YoY). This was mainly due to pressure on domestic demand for ceramic inks and higher raw material prices. The company has raised product prices in line with costs and stepped up the development of high-end functional ceramic inks and digital glazes. Textile ink sales grew rapidly, while localized overseas operations continued to improve. In emerging materials, certain filler products for copper-clad laminates achieved key technological breakthroughs. Validation by multiple leading customers accelerated, and small-batch sales were achieved. The company continued to develop low-loss spherical silica and other products for M8, M9 and M10 high-frequency, high-speed copper-clad laminates. High-refractive-index zirconia dispersions have achieved stable mass supply. Titanium oxide dispersions for AR waveguides have completed validation at multiple customers and achieved small-batch sales.

    Earnings forecast and investment rating: Against the backdrop of the rapid development of the AI and aerospace industries, the company’s MLCC powder, advanced packaging ceramic substrates, spherical silicon micropowder, satellite ceramic packages and other business lines are expected to accelerate commercialization. The company also possesses certain first-mover advantages in technology and industrial chain positioning across its business segments. Multiple business curves are expected to contribute incremental earnings simultaneously. We expect the company to achieve net profit of RMB900mn/RMB1.16bn/RMB1.36bn in 2026-2028. We maintain “buy” rating.

    Risks:

    1) Risk of AI and automotive-grade MLCC downstream demand falling short of expectations: Demand for the company’s high-end powder products depends on volume growth in AI servers and new energy vehicles. If AI capital expenditure slows or automobile sales and intelligent driving penetration fall short of expectations, shipments and pricing of high-capacitance and automotive-grade MLCCs as well as upstream powder products may be adversely affected;

    2) Risk of slower-than-expected customer certification and volume ramp-up for high-end powder products: Certification cycles for AI and automotive-grade MLCC powder products are lengthy. The company plans to bring its remaining 3,000 tons of high-end production capacity online by the end of 2026. If certification or capacity ramp-up progresses more slowly than planned, revenue contribution from high-end powder products may fall short of expectations;

    3) Risk of extended technology validation and customer onboarding cycles for emerging businesses: Businesses such as ceramic substrates, spherical silicon micropowder, ceramic packages, and solid-state electrolytes are largely still in the validation or capacity construction stage. If yield improvement, customer onboarding, or downstream mass production progresses more slowly than expected, they may struggle to make a significant earnings contribution in the short term;

    4) Risk of intensified industry competition and declining prices: As domestic substitution accelerates and manufacturers expand production capacity, related sectors may face oversupply and price competition over the medium to long term. If industry prosperity weakens, product prices and gross profit margin may come under pressure.

    5) Risk related to SDI integration and goodwill impairment: The company's ending goodwill balance was RMB1.836bn, accounting for 16.9% of total assets. SDI was consolidated into the company's financial statements following the completion of the transaction in July. If overseas business integration and channel synergies fall short of expectations, or if the operating environment deteriorates, the company may face goodwill impairment risk. Meanwhile, overseas revenue accounts for a high proportion of the company's total revenue, and exchange rate fluctuations may affect its consolidated profit or loss.