> ## Content Index > Fetch the complete content index at: https://gawinresearch.com/llms.txt > Use this file to discover other available public pages before exploring further. # Hengkun New Materials(688727.SH): Trading on a "Domestic-Substitution" Scarcity Premium, While Core Profit Is Quietly Declining - URL: https://gawinresearch.com/hengkun-unpacking-the-gap-1006/ - Published: 2026-10-06T06:08:52.000Z - Updated: 2026-10-06T06:08:52.000Z - Description: Hengkun New Materials, a Nov-2025 STAR Market IPO, trades on a "domestic-substitution" scarcity premium. Yet 2025 adjusted net profit fell 10.8% and gross margin slid from 62% to 45% amid the introduced-to-self-produced transition. P/E ~139x vs. industry 67x, with just 12% free float. - Author: Gawin - Tags: Unpacking the Gap Semiconductor Materials · STAR Market New IPO · Cognitive Gap Breakdown **Important Notice (B1 Header)** This article is part of the "Unpacking the Gap" series. It provides general information and an analytical framework only, and does not constitute investment advice, a solicitation, or an offer to buy or sell any security. The author and publisher are not registered investment advisers under the U.S. Investment Advisers Act of 1940, nor registered as commodity trading advisers; this document is intended solely for informational purposes and is directed at sophisticated institutional investors and high-net-worth individuals who are capable of independently evaluating investment risks. As of the publication date, the author(s) and publisher **do not hold** a position in Hengkun New Materials Co., Ltd. (688727.SH), including related options or derivatives, and no compensation has been received from the issuer, underwriter, or any third party for the preparation or dissemination of this article. All financial data and projections are based on publicly available company filings (periodic reports, announcements, investor relations materials) and third-party data providers (westock-mcp structured data, Shanghai Stock Exchange announcements); figures are presented in RMB unless otherwise noted. Cross-market accounting treatments (PRC GAAP vs. IFRS vs. US GAAP) may result in material restatements. Forward-looking statements reflect current expectations and involve known and unknown risks; actual results may differ materially. No guarantee is given that any projection will be realized. This article does not provide price targets or trading triggers. By accessing this content, you agree to our full Terms of Service and Disclaimer. **Risk Disclosure:** This article is solely a compilation of publicly available information on the listed company and a sharing of industry research, and does not constitute investment advice. Individual stock prices are affected by the macro environment, industry cycles, and company operations, among other factors, and carry elevated volatility. Investors should make decisions independently and invest rationally. Hengkun New Materials Co., Ltd. (688727.SH, "Hengkun") is a STAR Market IPO launched on 18-Nov-2025, focused on the R&D, production, and sale of **semiconductor photoresist materials and precursor materials** — squarely positioned on the "domestic substitution of semiconductor materials" theme. Within eleven months of listing, the share price has risen roughly 190% from the IPO price of RMB 14.99, at one point reaching RMB 80. Two contrasts, however, tend to be overlooked. First, while 2025 revenue grew 20.3% (a two-year CAGR of about 33.8%), **net profit attributable to shareholders rose only 5.9%, and adjusted (deducted non-recurring) net profit actually declined 10.8%**. Second, the company itself issued a risk notice in June 2026 flagging a trailing P/E that had reached 335x (versus an industry average of about 67x) and a free float of only 12.02%. On one side sits the scarcity halo of domestic substitution; on the other, an income statement that tells a story of "revenue without profit growth." Of the RMB 19.5bn market capitalization, how much is a genuine earnings foundation, and how much is an expectations premium attached to scarcity? This note unpacks the company's true complexion using filings and announcements. ## 1\. The Consensus Logic Already Priced In The market's broadly accepted fundamental thesis rests on three points: 1. **Scarce track**: Semiconductor photoresist and precursor materials have long been dominated by Japanese and U.S. suppliers, with low domestic localization rates and ample substitution headroom; Hengkun is one of the few A-share names positioned in this segment; 2. **Materials moat**: Gross margin of 45%–62% is markedly above that of assembly/EMS, and wafer-fab supplier certification cycles are long with high switching costs, creating a customer-certification barrier; 3. **A second curve**: In May 2026 the company committed RMB 50mn (50% stake) to establish a SOD (spin-on dielectric) joint venture, positioning itself in advanced-node key materials for domestic substitution. ## 2\. The Core Cognitive Gap The market's main misreading lies in treating "domestic substitution" as a synonym for earnings growth. Most observers see a "scarce domestic-substitution name in semiconductor materials" and assume the company is on a high-growth trajectory, but overlook a key precondition: **Hengkun is currently in the transition from "imported/introduced products" to "self-produced products."** "Introduced products" refers to the earlier phase in which the company scaled up by acting as an agent for / introducing mature products. As these arrangements are wound down, high-margin introduced-product revenue is shrinking while self-produced products are still ramping; the shift in revenue mix is producing a margin "grind" — a point the company states explicitly in its filings: in 2025, certain introduced-product collaborations were terminated, reducing gross profit on that segment, with growth in self-produced revenue only partially offsetting the impact, thereby dragging down operating profit and adjusted net profit on a consolidated basis. The outcome: revenue grew 49% in 2024 and 20.3% in 2025, but **gross margin declined from 62.24% to 44.84% in 2025**, and adjusted net profit shrank from RMB 94mn to RMB 84mn. That attributable net profit still managed modest positive growth owes to non-recurring items (IPO-related). In other words, the triple-digit multiple the market assigns to Hengkun should be anchored to "future profit after self-produced products scale up," not to current reported profit — and the current income statement is precisely at a point where profit is suppressed by the transition. Whether the shift delivers a smooth ramp and a margin recovery, or self-produced products underdeliver and margins keep compressing, remains subject to disagreement in the market, and the ultimate outcome is uncertain. > Underlying Logic > For "domestic-substitution" materials companies, do not look only at revenue growth — look at the profit structure. When a company is switching from "introduced/agency" to "self-produced," high revenue growth and declining adjusted profit can occur simultaneously; the denominator of the P/E (true earnings) is still being suppressed during the transition, so a static valuation can easily distort. The core is to track the gross-margin inflection and the self-produced revenue mix, not the revenue growth rate. ## 3\. Underappreciated Risks Several risks that are easily overlooked warrant ongoing attention: 1. **Valuation–liquidity mismatch**: The company itself has flagged a trailing P/E that reached 335x versus an industry average of \~67x, and a float of only 12.02%; liquidity is thin for a new IPO, and the downside elasticity of the multiple is large if sentiment cools; 2. **Lock-up release overhang**: As the one-year lock-up expires, restricted shares will be progressively released, materially expanding the float and potentially pressuring the share price; 3. **Earnings quality reliant on non-recurring items**: 2025 adjusted net profit already fell 10.8%; the positive attributable net profit growth incorporates IPO-related non-recurring gains. The +102% attributable net profit in 1H26 was also driven mainly by Q2 alone (Q1 was -9.4%), so durability remains unverified. ## 4\. Summary and Monitoring Framework On balance, Hengkun New Materials is best viewed as a **"high-scarcity, high-uncertainty growth option"**: the domestic-substitution logic for photoresist and precursors is real, and the SOD venture opens a second curve, but the current income statement still sits in the "introduced → self-produced" transition grind — adjusted profit is shrinking, and the vast majority of the triple-digit valuation is an expectations premium on the future. To assess the pace of real delivery, three indicators are worth tracking: 1. **Fundamentals**: the gross-margin inflection and adjusted net profit growth, and the pace at which self-produced revenue mix rises; 2. **Industry**: the establishment and industrialization progress of the SOD JV, and downstream wafer-fab expansion and order ramp; 3. **Capital**: the lock-up release schedule and the capacity release from IPO-funded projects. All domestic-substitution narratives ultimately have to convert into self-produced product ramp, margin stabilization, and adjusted-profit delivery — a scarcity premium without earnings support is unlikely to hold. This framework can be revisited against these indicators over time. **(B2 Tail — Consolidated Disclosures)** **B2a Sources:** This analysis is based on publicly available information from Hengkun New Materials Co., Ltd. (688727.SH) — Shanghai Stock Exchange announcements, periodic reports, and earnings flash reports — supplemented by westock-mcp structured market and financial data. All figures have been cross-checked against original filings where possible. The author assumes no responsibility for the accuracy of third-party data. **B2b Conflicts of Interest & Holdings:** As of the last trading day prior to publication, the author(s) and publisher **do not hold** a long or short position in the securities discussed. Neither the author nor the publisher has received any direct or indirect compensation from the issuer, its affiliates, or any underwriter for the production of this article; payment is not accepted for coverage or favorable analysis. If any material conflict arises in the future, it will be prominently disclosed in an updated version. **B2c Forward-Looking Statements:** Certain statements herein constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including but not limited to management guidance, capacity plans, technology-adoption timelines, market-share projections, and financial targets. Such statements are subject to significant business, economic, regulatory, and competitive uncertainties. Actual outcomes may differ materially. The author undertakes no obligation to update any forward-looking statement except as required by applicable law. **B2d Scenario Valuation Boundaries:** The P/E and P/B multiples and valuation observations referenced herein are intended solely as an illustrative framework for understanding key value drivers. They do not represent a price target, fair value estimate, or recommendation to buy, sell, or hold any security. Input assumptions — including revenue growth, margin trajectory, discount rate, terminal value, and foreign exchange rates — are inherently uncertain; small changes in inputs can produce large variations in output. Investors should conduct their own independent analysis. **B2e Cross-Market & Jurisdictional Notes:** This article discusses securities listed on the STAR Market of the Shanghai Stock Exchange. Differences in listing rules, trading hours, settlement cycles, currency, dividend taxation, short-selling regulations, and stock-connect mechanisms may materially affect investment outcomes. For EU/UK readers: this content is classified as "non-independent research" and is provided for professional clients / eligible counterparties only; it does not meet MiFID II independence requirements. For US readers: distributed as a general publication under the publisher's investment-adviser registration exemption, not tailored to any individual's financial situation. Always consult a qualified financial adviser before acting on any information herein. **Concentrated Risk Disclosure:** Valuation and liquidity risk, adjusted-profit decline and the product-mix transition grind, lock-up release overhang, slower-than-expected SOD industrialization, and downstream demand volatility may each adversely affect the company's performance and share price. **Data Sources:** Financial data drawn from the company's 2025 annual earnings flash report and 2026 interim report; business developments from official announcements (IPO, SOD JV, risk notices) and public investor-relations materials; industry views aggregated from public information. All figures are compiled from public channels. **Disclaimer:** This article is solely a compilation of public information and industry research sharing, and does not constitute investment advice. Markets involve risk; invest with caution. Hong Kong, Macao, and Taiwan are inalienable parts of China. **Interest Disclosure:** The author and affiliated entities do not hold any position in the securities mentioned herein, and there is no relevant interest relationship. This document is a reusable compliance framework and does not constitute legal advice. **Discussion:** Which do you find more compelling — Hengkun's photoresist core business or the SOD second curve? Share your view in the comments.