Why did revenue and profit beat expectations in the third quarter while gross margin declined?

  • Third-quarter 2026 revenue reached 4.62 billion yuan, up 27% year on year and 18% above Goldman Sachs’ forecast. Net profit was 212 million yuan, up 22% year on year and 24% above Goldman’s forecast. The traditional chemicals business remained the main growth engine, and all business segments grew.
  • Revenue expansion offset gross margin pressure: quarterly gross margin was 10.5%, down 0.7 percentage points year on year and 0.9 percentage points below Goldman Sachs’ forecast. Management attributed the pressure mainly to costs and price fluctuations involving major customers.
  • Expenses also helped support profit: operating expenses rose 16% year on year, 14% below Goldman Sachs’ forecast, reflecting good control of selling and administrative expenses and a reversal of impairment losses.

Which businesses are driving growth, and can price increases restore margins?

  • Global freight sales rose about 40% year on year, with faster growth in ocean, air and rail transport. Ocean freight volumes reached a third-quarter record, supported by growth in exports of new-energy products. Expansion of the tank container fleet drove 37% sales growth in the global mobile delivery business.
  • Global freight gross margin fell to 8.9%, down 3.9 percentage points year on year. Management said it could recover after price negotiations with major customers conclude. Improved operating conditions among chemical customers have also given the company greater bargaining room than in 2024–2025.
  • Warehousing gross margin was 35.7%. Although down 4.7 percentage points year on year, it recovered 0.6 percentage points quarter on quarter as warehouse utilization improved. Some customers have agreed to mid-single-digit percentage price increases, expected to take effect in the fourth quarter.

When will new businesses contribute to profit, and how is cash flow performing?

  • Orders from semiconductor customers began to ramp up in the third quarter, but order revenue recognized during the quarter represented a small share of orders on hand. Management expects a more noticeable contribution from the fourth quarter and sees a recovery in the chemicals business, high-margin new businesses and overseas expansion as drivers of profit growth.
  • Profit growth has yet to translate into ample cash flow: third-quarter operating cash inflow was 62 million yuan, below 250 million yuan in the second quarter. Capital expenditure rose from 62 million yuan in the second quarter to 244 million yuan, and free cash flow was negative 182 million yuan.
  • Following the mandatory conversion of convertible bonds into shares in August, the net debt ratio fell to 61% at the end of the third quarter from 83% at the end of the second quarter. Management expects leverage to improve further once working capital tied up in large projects is recovered.

How has Goldman Sachs adjusted its earnings forecasts and target price?

  • Goldman Sachs cut its 2026 net profit forecast by 2% to 722 million yuan, saying strong volume growth can only partially offset near-term gross margin pressure. Its earnings forecasts for 2027 and 2028 are largely unchanged.
  • Management expects double-digit year-on-year net profit growth in the fourth quarter of 2026 and is targeting double-digit growth in 2027. Its long-term goal is to raise net margin to 6%, from a range of 4%–5% since 2021.
  • Goldman Sachs maintained its buy rating and raised its 12-month target price from 80.7 yuan to 84 yuan, mainly because it rolled its valuation basis forward to 2027.