1Q26 results missed expectations, dragged down by FX loss and the water treatment business

Overview

This report is Morgan Stanley's review of Sunresin New Materials Co Ltd's full-year 2025 and 1Q26 results. The report believes that the company's 1Q26 results missed expectations, mainly due to an approximately Rmb40mn FX loss and weaker YoY performance in the water treatment business; however, excluding the FX loss, core earnings still showed strong resilience, and overall gross margin remained at a high level.

Core views

The core view is that the short-term earnings miss does not change Morgan Stanley's investment view on the company, and the rating remains Equal-weight / In-Line. Earnings pressure mainly came from non-operating FX losses and weaker water treatment performance versus the same period last year; revenue growth in other business segments was largely in line with expectations, with SPS carriers still showing strong growth. The target price of Rmb58.00 is below the current share price of Rmb65.67, implying about 12% downside.

Analysis framework

The report uses earnings comparison, segment breakdown, and sum-of-the-parts valuation. On earnings, it compares full-year 2025 and 1Q26 net profit, revenue growth, and gross margin; on segments, it focuses on businesses such as water treatment, SPS carriers, life science, system devices, and technology services; on valuation, it adopts a 2025e P/E-based SOTP framework, assigning different valuation multiples to different business segments.

Methodology notes

• Valuation methodsP/E-derived SOTP

  Sum-of-the-parts valuation

  Morgan Stanley conducts SOTP valuation based on 2025e P/E: traditional adsorption and separation resins are assigned 15x, life science 50x, and system devices and technology services 10x.

• modelMorgan Stanley ModelWare

  Internal earnings forecasting framework

  Unless otherwise stated, the key financial metrics in the report are based on the Morgan Stanley ModelWare framework.

• consensusRefinitiv Estimates

  Consensus data source

  The report states that consensus data is provided by Refinitiv Estimates, and data marked with S denotes consensus estimates.

Asset mapping & comparison

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

• Sunresin New Materials Co Ltd (300487.SZ)

  Company under coverage

  Strengths

  Core earnings excluding FX losses may still achieve high double-digit YoY growth; overall 1Q26 gross margin remained at 55%; SPS carrier revenue growth is estimated at about 40%.

  Weaknesses

  1Q26 net profit fell 6% YoY; the water treatment business was weak YoY; revenue grew only 5% YoY despite a low base.

  Comparison

  2025 net profit grew 14% YoY, but 1Q26 net profit fell 6% YoY, indicating a clear quarterly slowdown; the company's current share price of Rmb65.67 is above the target price of Rmb58.00.

  Risks

  Declining new lithium extraction orders, weak demand for water treatment resins, and intensified competition in SPS carriers and CM business.

• Water treatment segment

  Business segment dragging on 1Q26 results

  Strengths

  If it is not affected by macro challenges and continues gaining share, it could represent upside risk.

  Weaknesses

  YoY performance in 1Q26 was weak, dragging on company earnings.

  Comparison

  Aside from weaker water treatment, revenue growth in other segments was broadly in line with Morgan Stanley's expectations.

  Risks

  Weak demand or macro pressure could lead to a slower-than-expected recovery.

• Solid phase synthesis carriers

  High-growth business segment

  Strengths

  1Q26 revenue growth is estimated to have remained strong, at about 40% YoY.

  Weaknesses

  The report did not disclose detailed data on this segment's margins or order visibility.

  Comparison

  It performed better than the water treatment business and was one of the main segment highlights in 1Q26.

  Risks

  Competition from new entrants may weaken growth and profitability.

Key data

• 2025 net profitRmb897mnUp 14% YoY, slightly below Morgan Stanley's expectations.
• 2025 revenue growth+9% YoYFull-year revenue maintained growth.
• 1Q26 net profitRmb180mnDown 6% YoY, below expectations.
• 1Q26 revenue growth+5% YoYGrowth slowed on a low base.
• Estimated 1Q26 FX loss约Rmb40mnThe report considers this an important factor dragging on 1Q26 earnings.
• Overall 1Q26 gross margin55%Gross margin remained at a high level.
• Estimated 1Q26 SPS carrier revenue growth约+40% YoYThe report believes SPS carrier growth remained strong.
• Target priceRmb58.00Implying about 12% downside versus the April 22 closing price of Rmb65.67.
• 2026e EPSRmb2.07Morgan Stanley ModelWare forecast.
• 2027e EPSRmb2.65Morgan Stanley ModelWare forecast.

Impact & implications

The report has a neutral investment implication. In the short term, 1Q26 results missing expectations, the target price being below the current share price, and weaker water treatment operations limit valuation upside; however, the FX loss has certain non-operating characteristics, while core earnings, gross margin, and SPS carrier growth still provide fundamental support. Therefore, the report maintains a relatively neutral Equal-weight view rather than turning more positive or more cautious.

Risks

• Declining new lithium extraction orders.
• Weak demand for water treatment resins.
• New entrant competition in SPS carriers.
• Existing-player competition in the CM business.
• FX volatility may continue to affect short-term profits.
• Uncertainty in revenue recognition timing, especially for the system devices and technology services business.

What to watch

• Whether FX gains/losses continue to drag on net profit in subsequent quarters.
• Whether demand and market share in the water treatment business can recover.
• Whether SPS carriers can maintain high growth of about 40% or higher.
• The pace of new orders and revenue recognition related to lithium extraction.
• Whether the life science business benefits from potential domestic innovative drug orders and drives a reacceleration of medium- to long-term earnings.
• Whether there are adjustments to the historical target price trend and rating.