(CSSC SP / QES.SI)
1H26 validates price-volume conversion; insoluble sulphur becomes a second earnings engine
Materials
1H26 revenue rose 19% on a 9% increase in volume and a 9% increase in blended ASP, while gross margin expanded 0.6ppt to 25.2%. The old FY26 model had already been 59% filled by the first half and required an implausible second-half price reversal. We therefore raise FY26E revenue 18% and EBIT 17% versus the initiation model.
Segment volume increased 17% and revenue 87%, implying a 60% increase in realised ASP to RMB10,324/t. Insoluble sulphur supplied roughly 39% of the group revenue increase. Flexsys announced two Asia price increases and was downgraded to CCC-/Negative, supporting a higher pricing floor, but our base case assumes neither a competitor closure nor permanent spot-price conditions.
International volume grew 17% and reached 43.6% of shipments as Chinese tyre makers expanded overseas and global customers increased orders. The 20kt solvent-MBT project is in trial run, the TBBS2-to-CBS conversion is commercial, and finished accelerator capacity is expected to rise to 135kt by end-FY26, reinforcing cost control and supply reliability.
We reiterate OUTPERFORM and retain our S$1.145 DCF-based target price, using 12.0% WACC and 2.0% terminal growth. Higher FY26-27 operating value is offset by a RMB65.5m reduction in the valuation cash input and heavier near-term working capital and capex. The target implies a 73.5% upside from current price.
The principal downside risks are a faster reversal in insoluble-sulphur and accelerator ASP, sustained anti-oxidant weakness, poor receivable conversion, slower absorption of the 18kt accelerator expansion, RMB appreciation against USD movements, and cash remaining under-deployed or difficult to repatriate.
