[IPO Outlook] A-share Leader Goes Public in Hong Kong! Tongcheng Advanced Materials Reports Strong Performance, with Consistent Dividends in Recent Years

In the recent period, $MONTAGE TECH (06809.HK)$ 、$HANS CNC (03200.HK)$ 、 $MUYUAN (02714.HK)$ multiple companies have successively gone public on the Hong Kong stock market, successfully completing a dual listing in both 'A+H' markets.

On February 8, Tongcheng New Materials Group Co., Ltd. (referred to as 'Tongcheng New Materials'), which has been listed on the A-share market for many years, also submitted its listing application to the Hong Kong Stock Exchange, planning to be listed on the main board. This issuance will be solely sponsored by Guotai Haitong.

Focusing on the field of new chemical materials, the company's A-share price has increased by over 30% year-to-date.

$Red Avenue New Materials Group (603650.SH)$ The history of the company can be traced back to 1999. In 2016, it was restructured into a joint-stock company, and then successfully listed on the A-share market in June 2018. From the perspective of stock price trends, its recent performance has been mixed.Year-to-date (as of February 9), it has cumulatively risen by nearly 32%.

After years of development, Tongcheng New Materials has become a leading comprehensive new materials service provider in China, mainly engaged in the research and development, production, marketing, sales, and distribution of new chemical materials.The company’s main business includes three divisions: electronic materials; rubber additives for tires and other chemical products; and fully biodegradable materials.

Among these, the product supply of the electronic materials division is mainly divided into: (1) semiconductor materials, including semiconductor photoresists, CMP polishing pads, high-purity solvents, and EBR; (2) display panel materials, including display panel photoresists, organic insulating films, and light-emitting materials.

In the business segment of rubber additives and other chemical products for tires, Rongcheng New Materials' main product categories include rubber resins and additives, such as phenolic resins, PTBP, and other chemical products.

Regarding the fully biodegradable materials segment, the company's products mainly include PBAT products used primarily for packaging materials and agricultural mulch films.

Rongcheng New Materials also stated that the company is positioned in the midstream of the industry chain, supplying functional resins, photoresists, and auxiliary chemical products to downstream industries such as tire, automobile, semiconductor, and display panel manufacturers. However,the company is also committed to extending its core product business upstream in the industrial chain, expanding into the production of key raw materials and intermediates.

In terms of achievements, in the electronic materials field, Rongcheng New Materials ranked first among Chinese suppliers in sales revenue in China's semiconductor photoresist market and China's TFT array photoresist market during the first three quarters of 2025. Regarding the segment of rubber additives and other chemical products for tires, according to a Frost & Sullivan report, the company ranked first in sales revenue in both the global and Chinese markets for phenolic resin rubber additives for tires during the first three quarters of 2025.

Steady growth in performance, continuous optimization of profitability

In terms of financial performance, for the fiscal years 2023 and 2024, Rongcheng New Materials' revenues were RMB 2.937 billion and RMB 3.263 billion, respectively; annual net profits were RMB 404 million and RMB 534 million, respectively, achieving steady growth; annual gross margins were 23.3% and 24.4%, respectively, showing simultaneous improvement.

In the first three quarters of 2025,Rongcheng New Materials' revenue increased by 4.04% year-on-year to RMB 2.517 billion, net profit during the period increased by 11.61% year-on-year to RMB 522 million, and the gross margin during the period was 25.2%, maintaining a steady upward trend.

Overall, although Rongcheng New Materials' growth rate is not very high, the performance demonstrates stable growth, and profitability continues to improve.

Looking at the revenue structure by product, in the first three quarters of 2025, the revenue from rubber additives for tires and other chemical products accounted for a further decline to 69.7% of total revenue.The revenue share of electronic materials continued to increase to 27.8%.The revenue share of fully biodegradable materials was 2.5%.

It is not difficult to see that the electronic materials business has grown rapidly and has become the core growth engine, while rubber additives for tires and other chemical products, as the traditional core business, still maintain a solid market share. The overall revenue structure relies on mature businesses to secure the base, while high-growth businesses drive incremental growth.

More crucially, looking at the price and sales volume of products in recent years,The average selling price of electronic materials continued to rise, increasing from 44.3 thousand yuan per ton in fiscal year 2023 to 53.9 thousand yuan per ton in the first three quarters of 2025, with sales volume also steadily improving, achieving 'both volume and price increases.'This is a very positive signal.

The average selling price of rubber additives for tires and other chemical products slightly fluctuated downward, adjusting from 16.2 thousand yuan per ton in fiscal year 2023 to 14.8 thousand yuan per ton in the first three quarters of 2025, but sales volume steadily increased during fiscal years 2023-2024, remaining stable in the first three quarters of 2025.

The average selling price of fully biodegradable materials showed a fluctuating downward trend, while sales volume rebounded significantly to 7.3 thousand tons in the first three quarters of 2025 compared to the same period in 2024.

It is worth noting that,The fully biodegradable materials segment recorded ongoing gross losses, with a gross margin of -30.8% in the first three quarters of 2025.The subsequent development of this part of the business needs to be closely monitored.

Large dividend payouts in recent years, coupled with fundraising in Hong Kong, could spark controversy.

Additionally, there are a few areas related to Tongcheng New Materials that merit attention.

According to the prospectus, for fiscal years 2023 and 2024, and the first three quarters of 2025,the company declared final dividends of approximately 47.5 million yuan, 352 million yuan, and 298 million yuan respectively.In fiscal year 2024, the company also declared an interim dividend for the first half of the fiscal year, amounting to approximately 149 million yuan.

Clearly, Tongcheng New Materials has been very active and generous with its dividend distributions in recent years.

However, on the other hand, for fiscal years 2023 and 2024, and the first three quarters of 2025,the company's financial costs were approximately 84.085 million yuan, 97.323 million yuan, and 80.214 million yuan, accounting for 2.9%, 3.0%, and 3.2% of total revenue respectively,with the vast majority being interest on interest-bearing bank and other borrowings. The high financial costs have eroded the company’s profits.

Dividend payouts themselves are not problematic and align with the broader trend in the A-share market. However, bearing high financial costs while continuing to distribute substantial dividends can easily lead to controversy.

At the same time, Red Avenue New Materials has started raising funds on the Hong Kong stock market, which is also likely to attract investor attention. According to the prospectus, this Hong Kong listingRed Avenue New Materials plans to use the proceeds to enhance R&D efficiency and capabilities, expand overseas market presence and supply capacity, and fund strategic investments and/or acquisitions.

Conclusion

The current Hong Kong IPO market remains highly active, with all newly listed stocks rising on their first day of trading, showcasing strong market vitality. As a leader in its niche sector, Red Avenue New Materials' dual 'A+H' capital platform strategy is highly anticipated due to its solid performance. Nevertheless, investors should take note of areas such as the continued gross losses in the fully biodegradable materials division, which has yet to contribute to profitability, persistent erosion of profits from high financial costs, and successive cash dividend distributions.

Author: Yun Zhifengqi

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