Goldman Sachs: Rianlon's third-quarter profit hits a record, but Goldman Sachs cuts its earnings forecasts for the next three years

Why did profit reach a record despite cost pressures?

In the third quarter of 2026, Rianlon reported revenue of 1.66 billion yuan, up 10% year on year and in line with Goldman Sachs' forecast. Net profit rose 18% year on year and 7% quarter on quarter to 177 million yuan, a quarterly record and 4% above Goldman Sachs' forecast.
The earnings beat was driven mainly by gross margin: the company's overall gross margin was 24.7%, up 2.7 percentage points year on year and 1.7 percentage points above Goldman Sachs' forecast. An improved product and geographic mix, effective cost pass-through and a recovery in lubricant additive margins offset pressures including higher raw material prices.
Expenses and foreign exchange remain headwinds. Third-quarter operating expenses rose 40% year on year to 195 million yuan, mainly due to increased research and development spending. Foreign exchange losses for the first three quarters totaled 82 million yuan, including 18 million yuan in the third quarter.

Third-quarter revenue from polymer material stabilizers was 1.28 billion yuan, up 7% year on year but down from its second-quarter peak. Some customers had purchased ahead of time, and shipments returned to normal in the third quarter. An improved geographic and product mix softened the impact of lower sales volumes on revenue.
The business's third-quarter gross margin was 26.7%, up 2.8 percentage points year on year and broadly flat quarter on quarter. Cost pass-through and an improved product mix helped it maintain margins as oil prices rose, although price adjustments came with some lag.
Lubricant additive revenue rose 21% year on year to 381 million yuan, driven mainly by higher sales volumes of blended products and in overseas markets. Gross margin rose to 17.9%, up 2.8 percentage points year on year. The share of revenue from exports rose from 25% in the first half to 39% in the third quarter.

Management believes the previously set target of shipping 80 thousand tonnes of lubricant additives in 2026 is now challenging. If ongoing road and marine tests translate into commercial orders, sales volume could still grow by about 30% in 2027.
Management expects the business's gross margin to continue recovering from 17.9% in the third quarter, with the potential to reach 19%–20% in 2027.
Construction of the first-phase plant in Malaysia is scheduled for completion by the end of 2026, with trial production in 2027. Management expects it to contribute revenue and some profit in 2027 after production ramps up, with the scale depending on commissioning and ramp-up progress.

Goldman Sachs cut its earnings-per-share forecasts for 2026–2028 by 3%–6%, citing a slower-than-expected ramp-up in lubricant additives, higher operating expenses and foreign exchange pressure. More resilient unit profit margins across most products partly offset these effects.
The company recorded net operating cash inflow of 189 million yuan in the third quarter, down 44% year on year. Capital expenditure was 185 million yuan, leaving free cash flow of just 4 million yuan.
Goldman Sachs maintained its buy rating and 12-month price target of 60 yuan per share, while rolling its valuation date forward from mid-2027 to the end of 2027.