The cognitive gap stems from Kingfa's reporting structure, which happens to conceal its most valuable part. Of 2025 revenue of RMB 65.4bn, modified plastics (55%) and green petrochemicals (19%) are the largest and most visible commodity businesses. The former is viewed as a cyclical processing business whose profitability rises and falls with resin prices; the latter has lost money for five consecutive years and dragged reported ROIC down to 3%. Quantitative screens and sell-side coverage therefore naturally classify Kingfa as a "commodity cyclical stock" and apply only commodity valuation multiples. Yet the new-materials business that is genuinely changing the company's value is too small in reported size and is completely drowned out by the noise from commodity businesses. In other words, the market's neglect of Kingfa's transition is the key foundation of this investment.

Three profit drivers are likely to resonate within our holding period.

First and most underappreciated: specialty materials ramping in AI and robotics. Kingfa's competitiveness lies in being the only domestic platform that has both upstream polymerization and downstream modification capabilities, as well as a structural-design team. This allows it to work with customers on integrated "material + structure" customized development. In addition, it benefits from scheduling advantages brought by average order sizes above 30,000 tonnes (a 10-15% cost advantage versus peers) and a steep cost-reduction curve after scale-up (LCP unit cost fell from RMB 40,000/t to RMB 27,000/t within one year, a 32.5% reduction). As a result, product R&D efficiency and gross margin continue to lead peers.

• AI servers are the most certain near-term source of volume growth. Kingfa has more than 40% market share in LCP for high-speed connectors and is the only LCP solution supplier on the raw-material side for NVIDIA GB200/GB300 (even materials used by second-source Luxshare are connected through Kingfa). It also holds 30-90% share in DDR memory, CPU sockets and other areas, and has completed DDR6 material development and customer certification for next-generation PPS thermal-management solutions. Long-term, stable co-development and supply capabilities form Kingfa's moat.
  
  

•  Robotics offers a longer-term and more elastic opportunity. Kingfa has entered leading customers such as Yu X, You Xuan and Te XX. Its material solutions cover almost all key components, from skeletons (high-temperature/long-chain nylon), gear and harmonic-drive components (PEEK replacing steel), exoskeletons (carbon-fiber composites with 70% market share) to electronic skin (TPU). To enter the home, humanoid robots must be substantially lightweighted; "replacing steel with plastics" is the only path. Plastic content per robot will therefore increase, tightly linking Kingfa's material demand to robot production volume.
  
  

Today this business is still small, but its real value lies in how it scales. AI and robotics materials are design-in materials with certification cycles of 1.5-3 years: the certification threshold is high, replacement is extremely difficult once the material is designed in, and shipments will ramp in lockstep with customers' product volume curves, producing step-changes in earnings. This non-linear elasticity is exactly what the market misses when it evaluates the business by its "static revenue contribution."

Second, the modified-plastics product mix is upgrading. Historically, peers mainly engaged in general-purpose modification of externally purchased resin. Kingfa, by contrast, consciously upgraded its product structure a decade ago and entered engineering-grade modification based on self-produced synthetic resins. The gross-margin gap between the two product categories is 10-20 percentage points. Engineering-grade products as a share of the modified-plastics mix have increased from 15% in 2018 to roughly 30%, driving steady improvement in consolidated gross margin. This is the fundamental reason why Kingfa's consolidated gross margin has long been 5-10 percentage points higher than general-material peers such as Guoen and Dawn. In addition, Kingfa was one of the earliest companies in the industry to expand overseas. Overseas business now accounts for 16% of revenue; 2025 sales volume increased 27%; and gross margin carries a 3-5 percentage point premium, further reinforcing the margin-improvement trend.

Third, petrochemical losses are narrowing. The PDH/PP/ABS expansion has been completed and capital expenditure is receding. Petrochemical products are primarily consumed internally by the modified-plastics business, which gives the segment assured demand, and the company maintains utilization far above peers during an industry downturn. Taking Ningbo Kingfa's PP unit as an example, current operating load is as high as 134%, far above the industry average of around 60%, with processing costs more than 30% lower than the industry. More importantly, upstream and modification capabilities are continuously integrated through Ningbo Kingfa and Liaoning Kingfa, the company's two petrochemical subsidiaries. More self-produced PP is being consumed by the internal modified-plastics business, while outbound products are shifting from commodity grades such as ordinary ABS to specialty and differentiated grades (targeting more than 70% specialty-grade contribution). The "liquid-to-solid" route (propylene to modified materials) increases value added. As depreciation and impairment provisions are completed, both petrochemical subsidiaries are clearly expected to reach breakeven by 2028.