High-end MLCC powder and new energy businesses drive growth, but the current price already largely reflects expectations

Overview

The report focuses on Sinocera Functional Material's upgrade of high-end MLCC dielectric powder, the integration of the SDI acquisition, growth in new energy materials, and incubation of AI data center-related products. Nomura expects these factors to generate relatively rapid earnings growth but believes the current valuation already reflects substantial growth expectations, and therefore initiates coverage with a Neutral rating and a CNY 70 target price.

Core views

The company began with barium titanate powder for electronic ceramics and, leveraging its proprietary hydrothermal synthesis process, became a leading domestic substitute for imported MLCC dielectric powder in China. Since 2014, it has expanded into catalytic materials, biomedical materials, and architectural ceramic materials through acquisitions, forming a ceramic materials platform serving multiple end markets. In 1H26, the company recorded revenue of CNY 2.51bn, up 16.6% YoY, and net profit of CNY 363mn, up 9.4% YoY. New energy materials were the primary source of incremental growth, with revenue rising 56.5% YoY to CNY 339mn and gross margin increasing 13.5 percentage points to 34.7%, while other businesses remained generally stable. Electronic materials are the report's most important growth theme. Nomura believes the recovery in MLCC demand, together with increased use of high-capacitance MLCCs in AI servers and automotive electronics, will improve both demand and the product mix. The company is raising capacity utilization and expanding high-end MLCC dielectric powder capacity for AI server and automotive applications. The report forecasts MLCC dielectric powder sales volumes of 12.3kt, 13.5kt, and 13.8kt in 2026—2028, respectively. As high-end powder commands higher prices than conventional products, overall average selling prices are expected to increase by 4%, 5%, and 10% YoY, respectively. Volume expansion and higher unit prices together support a 20% CAGR in electronic materials revenue during 2026—2028, while product mix optimization and higher capacity utilization gradually lift gross margin to 38%—39%, with the summary forecasting approximately 39% in 2028. Growth in biomedical materials will come from demand, localization, and acquisitions. Population aging supports demand for dental materials, while the aesthetics and durability of zirconia ceramics should help penetration continue to increase. China's export controls on certain rare-earth materials, including yttrium oxide required to stabilize zirconia, could constrain overseas zirconia production and create localization opportunities. On July 6, 2026, the company completed its acquisition of Australian dental restoration product manufacturer SDI Limited, further expanding its product range beyond zirconia powder and ceramic blocks. SDI's distribution networks in Europe, the United States, and Australia should also support overseas expansion. Combining domestic demand, localization opportunities, and the consolidation of SDI, Nomura expects this business to deliver a 20% revenue CAGR and a gross margin of 51%—52% during 2026—2028. The company also announced zirconia powder price increases of 10%—40% beginning in July 2026, which the report believes could offset part of the increase in raw material costs. In catalytic materials, the company is a major provider of automotive exhaust-emission control solutions in China. The report expects stricter domestic emission standards, coverage of more vehicle models, and overseas expansion through cooperation with leading international customers to support a 15% revenue CAGR for this business during 2026—2028, with gross margin remaining at approximately 42%. Other businesses show a divergence between pressure on traditional operations and acceleration in new businesses. Weakness in China's real estate market continues to pressure demand for architectural ceramic materials, and the company is seeking to stabilize operations through product innovation and overseas expansion. New energy materials, meanwhile, are growing rapidly. Nomura expects their revenue to achieve a 33% CAGR during 2026—2028 and become an increasingly important revenue source. Some spherical silica powder used as filler for copper-clad laminates has entered small-batch sales. Ceramic substrates used in applications such as thermoelectric coolers and multilayer ceramic substrates remain in the joint development and customer validation stages. These AI-related businesses currently make limited contributions, but if they pass customer certification and enter mass production, they could unlock growth opportunities in AI data center applications. The report expects the overall other-business segment to achieve a 19% revenue CAGR during 2026—2028, with scale effects and a higher proportion of value-added products raising gross margin from 30% in 2026 to 35% in 2028. Expenses will be affected by the acquisition in the near term. Professional service fees related to the SDI acquisition are expected to raise the administrative expense ratio to 7.2% and the operating expense ratio to 20.6% in 2026, while increased long-term borrowings could lift the financial expense ratio to 0.6%. As the one-off impacts fade, the administrative expense ratio is expected to decline to 7.0% and 6.8% in 2027—2028, the operating expense ratio to 20.4% and 20.1%, and the financial expense ratio to 0.5% and 0.2%. Combining the volume ramp-up of high-end MLCC powder, the consolidation of SDI, and growth in the new energy business, Nomura forecasts revenue of CNY 5.66bn, CNY 6.75bn, and CNY 7.66bn in 2026—2028, respectively, and net profit of CNY 891mn, CNY 1.15bn, and CNY 1.40bn, representing revenue and net profit CAGRs of 19% and 32%, respectively. Diluted normalized EPS is expected to reach CNY 0.89, CNY 1.15, and CNY 1.39 over the same period, increasing 46.9%, 29.2%, and 21.0% YoY. ROE is expected to rise from 8.5% in 2025 to 11.4%, 13.0%, and 13.8% in 2026—2028. Nomura's earnings forecasts exceed market consensus, mainly because it is more optimistic about earnings improvement from the premiumization of MLCC powder and economies of scale in the new energy business. Free cash flow is expected to increase from CNY 324mn in 2026 to CNY 619mn in 2027 and CNY 1,131mn in 2028, with the company maintaining a net cash position in each forecast year. The valuation uses a P/E methodology. Nomura believes the company will maintain stable earnings growth and therefore derives a CNY 70 target price by applying a 60x target P/E to forecast 2027 EPS of CNY 1.16; the diluted normalized EPS presented in the financial statements for 2027 is CNY 1.15. The 60x target P/E exceeds the peer average, which is shown as 43.2x in the summary and 43.6x in the valuation section based on Wind consensus estimates. The report attributes the premium to the company's leading position in MLCC dielectric powder, continued volume growth in high-end products, improving product mix, and potential incremental valuation from AI-related businesses. The stock currently trades at 58.6x forecast 2027 P/E. During the month ended August 21, 2026, it outperformed the CSI 300 Index by 15.8 percentage points, which the report believes mainly reflects solid performance in the core businesses and market expectations for progress in new AI businesses. As the target price is only 3.2% above the closing price of CNY 67.86, Nomura initiates coverage with a Neutral rating. Regarding ESG, the company's 2025 ESG report indicates that it has established a ceramic waste recycling system and optimized the calcination and reaction processes for core products such as zirconia and silicon nitride to reduce energy consumption and solid waste per unit of output. The zirconia waste recycling rate exceeds 75.2%. The main uncertainties relate to downstream demand, the pace of customer validation and scaled volume ramp-up for new products, and fluctuations in raw material prices affected by environmental policies and export controls. These factors could affect revenue, scale effects, gross margin, and earnings, respectively.

Analysis framework

The report first uses 1H26 results to confirm the existing business foundation, then separately analyzes demand, sales volume, pricing, product mix, acquisition consolidation, and gross margin assumptions for electronic materials, biomedical materials, catalytic materials, and other businesses. It aggregates these assumptions into revenue, profit, expense, and cash flow forecasts for 2026—2028. Finally, using comparable-company P/E multiples as a reference, it assigns a valuation premium for the company's leading position in high-end powder and the potential of its AI-related businesses, and derives the target price and rating accordingly.

Methodology notes

• Valuation methodologyP/E and PEG valuation

  Comparable-company P/E valuation

  The report applies a 60x target P/E to forecast 2027 EPS of CNY 1.16 to derive a CNY 70 target price and explains the valuation premium over peers based on the company's leading position in MLCC dielectric powder, high-end product upgrades, and AI business potential.

• Industry/sector analysis frameworkVolume-price decomposition

  Decomposition of MLCC dielectric powder sales volume and average selling price

  The report separately forecasts dielectric powder sales volume and average selling price growth for 2026—2028 to explain how demand recovery and a higher proportion of high-end powder jointly drive revenue and gross margin growth in electronic materials.

• Industry/sector analysis frameworkUpstream-midstream-downstream value chain transmission

  Transmission from end demand and material supply constraints to ceramic powder profitability

  The report links downstream developments in AI servers, automotive electronics, dental materials, and automotive emission standards to demand for MLCC dielectric powder, zirconia, and catalytic materials, while also analyzing how rare-earth export controls and higher raw material costs are transmitted to product prices and gross margins.

• Competition and strategy frameworkEconomies of scale / learning curve

  Capacity utilization and scale effects

  The report believes that higher utilization of high-end powder capacity, volume growth in new energy materials, and a greater proportion of value-added products will dilute costs and gradually improve gross margins in the relevant businesses.

Asset mapping & comparison

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

• Sinocera Functional Material (300285 CH)

  High-end MLCC dielectric powder, new energy materials, the consolidation of SDI, and new AI-related products constitute the main growth drivers.

  Strengths

  The company holds a leading position in domestic substitution for imported MLCC dielectric powder in China, possesses a proprietary hydrothermal synthesis process and a diversified ceramic materials platform, and has potential for product premiumization and overseas channel expansion.

  Weaknesses

  Architectural ceramic materials are affected by weakness in China's real estate market, AI-related products currently make limited contributions, and SDI transaction expenses and increased borrowings raise expense ratios in the short term.

  Comparison

  The 60x 2027 target P/E exceeds the peer average of 43.2x; the peer average shown in the valuation section based on Wind consensus estimates is 43.6x.

  Risks

  Changes in downstream demand, the pace of new product volume growth, and raw material prices could cause revenue, gross margin, and earnings to deviate from forecasts.

Key data

• 1H26 revenueCNY 2.51bnUp 16.6% YoY
• 1H26 net profitCNY 363mnUp 9.4% YoY
• 1H26 new energy materials revenueCNY 339mnUp 56.5% YoY
• 1H26 new energy materials gross margin34.7%Up 13.5 percentage points YoY
• MLCC dielectric powder sales volume forecast12.3kt/13.5kt/13.8ktCorresponding to 2026F/2027F/2028F
• MLCC dielectric powder average selling price growth4%/5%/10%Corresponding to YoY growth in 2026F/2027F/2028F
• Electronic materials revenue CAGR20%2026—2028F
• Electronic materials gross margin38%—39%Expected to rise with a higher proportion of high-end products and improved capacity utilization
• Biomedical materials revenue CAGR20%2026—2028F
• Biomedical materials gross margin51%—52%2026—2028F
• Zirconia powder price increase10%—40%Effective from July 2026
• Catalytic materials revenue CAGR15%2026—2028F, with gross margin expected at approximately 42%
• New energy materials revenue CAGR33%2026—2028F
• Other businesses gross margin30%/35%2026F/2028F
• Revenue forecastCNY 5.66bn/CNY 6.75bn/CNY 7.66bnCorresponding to 2026F/2027F/2028F, with a 19% CAGR
• Net profit forecastCNY 891mn/CNY 1.15bn/CNY 1.40bnCorresponding to 2026F/2027F/2028F, with a 32% CAGR
• Diluted normalized EPSCNY 0.89/CNY 1.15/CNY 1.39Corresponding to 2026F/2027F/2028F; 2027F EPS used for valuation is CNY 1.16
• Free cash flowCNY 324mn/CNY 619mn/CNY 1,131mnCorresponding to 2026F/2027F/2028F
• Target P/E60x 2027F P/EAbove the peer average of 43.2x; the peer average based on Wind consensus estimates shown in the valuation section is 43.6x
• Current valuation58.6x 2027F P/ETrading level when the report was published
• Target priceCNY 70.00Implies 3.2% upside from the CNY 67.86 closing price
• Performance relative to CSI 300+15.8 percentage pointsFor the month ended August 21, 2026
• Zirconia waste recycling rate>75.2%From the company's 2025 ESG report

Impact & implications

The report believes the company's near-term growth will be driven mainly by product mix upgrades in high-end MLCC powder, the consolidation of SDI, and scaled expansion of new energy materials, while AI data center-related spherical silica powder and ceramic substrates offer potential medium- to long-term incremental growth. Strong earnings growth and business upgrades support a valuation premium over peers, but the current 58.6x forecast 2027 P/E is already close to the 60x target valuation, leaving only 3.2% upside to the target price; the rating is therefore Neutral.

Risks

• MLCC, new energy, and real estate-related applications are affected by the macroeconomic environment, industrial policies, investment cycles, and competition. Downstream demand that is stronger or weaker than expected could cause operating performance to deviate from forecasts.
• Multiple new product lines remain in the customer validation or capacity ramp-up stages. Commercial shipments and the realization of scale effects occurring faster or slower than expected would correspondingly affect revenue and earnings.
• Prices of certain raw materials are affected by environmental policies and export controls. If supply constraints and price fluctuations are smaller or greater than expected, gross margin and earnings could be above or below forecasts.

What to watch

• Whether sales volumes of high-end MLCC dielectric powder can exceed expectations.
• Whether customer certification, mass production, and commercialization of AI-related businesses such as spherical silica powder and ceramic substrates can accelerate.
• Product synergies following the consolidation of SDI and progress in channel expansion across Europe, the United States, and Australia.
• The effectiveness of zirconia powder price increases in passing through higher raw material costs.