2Q26 results beat expectations, with battery materials volume growth and nickel resources providing earnings leverage

Overview

This report provides Morgan Stanley's review of CNGR Advanced Material Co., Ltd.'s results. It points out that the company's 2Q26 performance was above expectations and that, despite potential pressure from foreign-exchange losses, both 1H26 net profit and recurring net profit still recorded substantial year-over-year growth. Key positive factors included improving battery materials demand, higher precursor and iron phosphate volumes, a return to positive iron phosphate margins, and earnings contributions from the resource advantages of its nickel mining and nickel smelting operations.

Core views

The core view is that the company's fundamental momentum remains strong. The 2Q26 earnings beat has a positive impact on the investment view, while the overall investment thesis remains “Unchanged”. Morgan Stanley maintains its Overweight rating and Attractive industry view, believing consensus EPS estimates could be revised slightly upward over the next 12 months. The report also emphasizes that accelerating penetration of downstream energy storage systems and robotics applications should support battery materials demand, while overseas capacity ramp-up could further drive volume growth.

Analysis framework

The report uses earnings decomposition, year-over-year growth analysis, sequential quarterly comparisons, and volume and margin driver analysis, combined with a DCF valuation framework to assess the target price. The earnings analysis focuses on 1H26 net profit, recurring net profit, implied 2Q26 profit, changes in precursor and FePO4 volumes, as well as investment income from nickel mining and nickel smelting profitability.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The target price is based on a discounted cash flow model using earnings forecasts through 2035e; assumptions include a 10.4% WACC, 11.6% cost of equity, 3.8% risk-free rate, 6% risk premium, 1.3 beta, and 3% perpetual growth rate.

• Research modelMorgan Stanley ModelWare

  Morgan Stanley's internal forecasting framework

  Unless otherwise stated, the key financial metrics in the report are based on the Morgan Stanley ModelWare framework, while certain metrics such as EPS use a consensus methodology.

• Rating systemOverweight / Equal-weight / Underweight

  Relative rating system

  Overweight indicates that, over the next 12 to 18 months, the stock's expected total return is forecast to exceed the average total return of the analyst's industry coverage universe on a risk-adjusted basis.

Asset mapping & comparison

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

• 02579.HK

  Covered Hong Kong-listed security

  Strengths

  2Q26 results beat expectations; precursor and FePO4 volume growth; FePO4 margins turned positive; nickel mining and nickel smelting resource advantages support profitability.

  Weaknesses

  Profitability may be affected by foreign-exchange losses, industry competition, and commodity price volatility.

  Comparison

  Rated Overweight, with an Attractive industry view; the target price of HK$36.00 implies 53% upside from the closing price of HK$23.46.

  Risks

  Slowing demand, margin compression caused by competition, commodity price volatility, and changes in policy or technology pathways.

• 300919.SZ

  Related A-share security of the same company

  Strengths

  Shares the same company fundamentals as the Hong Kong-listed stock, with the same battery materials and nickel resource business drivers.

  Weaknesses

  Valuation and A/H premium assumptions affect the derivation of the Hong Kong-listed target price.

  Comparison

  The report mentions historical A-share target prices of Rmb53.9 on January 12, 2026 and Rmb50.4 on July 9, 2026.

  Risks

  A-share valuation volatility, exchange-rate movements, and changes in the A/H premium may affect cross-market pricing.

Key data

• 1H26 net profitRmb1.25-1.35bnUp 71%-84% year over year.
• Implied 2Q26 net profitRmb695-795mnAbove 1Q26's Rmb555mn and Morgan Stanley's expectations.
• 1H26 recurring net profitRmb1.2-1.3bnUp 84%-99% year over year.
• Implied 2Q26 recurring net profitRmb682-782mnCompared with 1Q26's Rmb518mn.
• Precursor volume+50% YoYMargins remained stable.
• FePO4 volume+25% YoYMargins turned positive.
• Target priceHK$36.00Derived from the A-share target price, a 60% A/H premium, and an exchange rate of 0.87 HKD/CNY.
• Closing priceHK$23.46As of July 13, 2026.
• Upside53%Upside relative to the target price.
• 2026e EPSRmb2.24Morgan Stanley table forecast.
• 2026e P/E9.1xMorgan Stanley table forecast.

Impact & implications

The earnings beat strengthened market confidence in the company's battery materials volume growth, improving iron phosphate profitability, and integrated nickel resource advantages. If downstream energy storage and robotics-related demand continues to accelerate, combined with overseas capacity ramp-up, the company's volume and earnings forecasts could be revised modestly upward; however, valuation remains exposed to commodity price volatility, intensifying competition, and changes in policy and technology pathways.

Risks

• Downstream demand may slow due to changes in technology pathways or government policies.
• Intensifying competition may lead to margin compression.
• Commodity price volatility may affect the company's profitability.
• Foreign-exchange losses may weigh on quarterly profit.
• Valuation depends on assumptions including WACC, beta, perpetual growth rate, A/H premium, and exchange rates; changes in these assumptions may affect the target price.

What to watch

• Whether energy storage systems and robotics applications continue to drive battery materials demand.
• Whether precursor volume growth can be sustained while margins remain stable.
• Whether FePO4 volume growth and the return to positive margins are sustainable.
• The pace of overseas production base ramp-up and its contribution to volume growth.
• Whether investment income from nickel mining and the raw material advantages of nickel smelting remain sustainable.
• Whether consensus EPS estimates are revised modestly upward over the next 12 months.