Sinocera's 1Q26 margins missed expectations; Goldman Sachs maintains Neutral rating

Overview

This report is Goldman Sachs' review of Sinocera Functional Material 300285.SZ's 1Q26 earnings. The company released its 1Q26 results after market close on April 27 and subsequently held an analyst conference call. Goldman Sachs noted that both 1Q26 revenue and net profit were below its expectations, with the core issues being slower-than-expected revenue growth and weaker-than-expected gross margin delivery; however, management emphasized that construction ceramics cost pass-through began to advance in March, biomedical materials maintained solid momentum, and progress in new products such as AI/automotive-grade MLCC materials, solid-state electrolytes, and high-end spherical silica powder is visible, with most products expected to generate sales in 2026.

Core views

Goldman Sachs maintains a Neutral rating, believing the company has long-term growth potential and import substitution opportunities in advanced ceramic materials, but that the current valuation already largely reflects its long-term growth potential. In the short term, the main negative factor is that 1Q26 margins missed expectations; in the medium term, the main supports are commercialization of new products, cost pass-through, and QoQ margin improvement in 2Q.

Analysis framework

The report takes the gap between 1Q26 results and Goldman Sachs expectations as the main thread, breaking down revenue, gross margin, expenses, EBIT, net profit, and cash flow performance, while incorporating information from the management call to assess the production ramp-up pace of new products, price pass-through, capacity expansion, and full-year forecast revisions. For valuation, it uses 2030E P/E and discounts it back to mid-2027E to derive the 12-month target price.

Methodology notes

• Valuation methodsP/E discount-back valuation

  The target price is based on 25x 2030E P/E and discounted back to mid-2027E using a 10.0% COE.

  Goldman Sachs' 12-month target price of Rmb33.0 is derived from a 25x 2030E P/E, then discounted using a 10.0% cost of equity; the 25x exit multiple is based on the weighted average 10-year mid-cycle P/E of key global companies in Sinocera's relevant end markets.

• factor_profileGS Factor Profile

  It compares the stock's position relative to the market and industry across four dimensions: Growth, Financial Returns, Multiple, and Integrated.

  Growth is based on forward sales, EBITDA, and EPS growth; Financial Returns is based on ROE, ROCE, and CROCI; Multiple is based on P/E, P/B, dividend-related indicators, EV/EBITDA, EV/FCF, etc.; Integrated is the average of the percentiles for Growth, Financial Returns, and 100%-Multiple.

• corporate_actionM&A Rank

  Goldman Sachs classifies the probability of a company being acquired into ranks 1 to 3, and Sinocera's M&A Rank is 3.

  Rank 3 represents a low probability, approximately 0%-15%, and therefore is not included in the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 300285.SZ

  Covered stock; Sinocera's A-share.

  Strengths

  A leading Chinese supplier of advanced ceramic materials, covering structurally growing end markets such as electronics, catalysis, new energy, and biomedical fields; new products include AI/automotive-grade MLCC powder, solid-state electrolytes, high-end spherical silica powder, and ceramic substrates.

  Weaknesses

  1Q26 revenue and net profit were below GSe, while construction ceramics gross margin fell from 30%+ in 1Q25 to the low-20% range in 1Q26, putting short-term margins under pressure.

  Comparison

  The rating is relative to the China Advanced Materials & Construction coverage universe; the report mentions comparisons with Asia ex Japan Coverage and industry peers in the GS Factor Profile.

  Risks

  Ceramic powder market share expansion, new business expansion, and end-market growth could all be slower or faster than expected.

Key data

• 1Q26 revenueRmb1.06bn, up 9% YoY, 6% below GSeRevenue growth was slower than expected.
• 1Q26 net profitRmb142mn, up 5% YoY, 13% below GSeAffected by weaker-than-expected revenue and gross margin delivery.
• 1Q26 gross margin36.7%, flat YoY, 1.0ppt below GSeThe construction ceramics business was dragged by rising raw material prices.
• 1Q26 operating cash flowRmb169mnHigher than Rmb92mn in 1Q25.
• 1Q26 capexRmb167mnHigher than Rmb75mn in 1Q25.
• Ending net cashRmb195mnDown QoQ from Rmb253mn at the end of 4Q25.
• 2026E revenueRmb5,413.2mnGoldman Sachs forecast.
• 2026E EPSRmb0.77Goldman Sachs forecast.
• 2026E P/E47.9xBased on the report table.
• Market capitalizationRmb37.2bn/$5.4bnKey data from the report.
• Enterprise valueRmb37.5bn/$5.5bnKey data from the report.
• 3-month average daily turnoverRmb1.4bn/$209.5mnKey data from the report.

Impact & implications

The short-term investment implication is neutral: 1Q margins below expectations weaken earnings delivery, but price pass-through, new product ramp-up, and tight supply-demand for spherical silica powder may improve market confidence in earnings recovery after 2Q. As the target price is below the current price and the rating is Neutral, Goldman Sachs has not translated the long-term opportunities of new products into a more positive rating.

Risks

• Ceramic powder market share expansion is slower than expected.
• New business expansion is slower than expected.
• End-market growth is slower than expected.
• Rising raw material prices continue to pressure margins in businesses such as construction ceramics.
• FX losses and equity incentive expenses negatively affect earnings.
• Customer validation, production ramp-up, or capacity expansion for new products fall short of expectations.

What to watch

• The extent of QoQ gross margin improvement in construction ceramics after cost pass-through in 2Q26.
• Sales and net profit contribution from AI/automotive-grade MLCC powder starting in 2Q26, as well as the 2026 shipment target of about 1,000 tons.
• Progress in customer sample validation after completion of the solid-state battery electrolyte production line and trial production.
• Revenue recognition timing for LiDAR ceramic substrates, optical module TEC cooling chips, and multilayer ceramic substrates for data centers.
• Customer validation, small-batch procurement, in-year breakthroughs, and year-end completion of 2k tons capacity for high-end spherical silica powder.
• Whether full-year earnings forecasts will continue to be maintained, and the impact of expenses, FX, and equity incentives on net margin.