New Stock Analysis | Red Avenue New Materials Group Races Toward Hong Kong IPO: Opportunities and Hidden Concerns Amid the Window for Domestic Substitution

Global new materials industry is at the intersection of technological iteration and supply chain restructuring. On one hand, the explosive demand for AI computing power is driving continuous expansion in semiconductor manufacturing, pushing up demand for key electronic materials such as photoresists and CMP polishing pads; on the other hand, rising new energy vehicle penetration is forcing tire performance upgrades, making the formulation value of high-performance rubber additives increasingly prominent. On these two seemingly parallel tracks, Red Avenue New Materials Group Co., Ltd. (hereinafter referred to as "Red Avenue New Materials Group") has stepped into the spotlight with a rare "dual-wheel drive" posture according to Frost & Sullivan, the company ranked first globally and in China in sales revenue in the tire phenolic resin rubber additives market for FY2025, with market shares of 41.4% and 45.9% respectively; it also ranked first among domestic suppliers in China's semiconductor photoresist and TFT array photoresist markets by sales revenue, with market shares of 5.8% and 26.2% respectively. It is noted that Red Avenue New Materials Group recently passed the Hong Kong Stock Exchange hearing and plans to list on the Main Board of the Hong Kong Stock Exchange, attempting to further consolidate its global position in electronic materials and specialty rubber additives through an "A+H" dual capital platform. So as a leader in China's domestic semiconductor photoresist sector, what highlights does Red Avenue New Materials Group bring in its bid for the Hong Kong Stock Exchange? From Trader to Platform-Based New Materials Enterprise Red Avenue New Materials Group's history can be traced back to 1999, when the company initially entered the market as an international rubber additives trader. The company successively established production bases and R&D centers in Zhangjiagang, Jiangsu and Shanghai, completing its penetration from trading to upstream manufacturing. In 2018, the company successfully listed on the Shanghai Stock Exchange, and thereafter gradually extended its business reach into electronic materials including semiconductor photoresists, display panel photoresists, CMP polishing pads and high-purity solvents through strategic investments, and in 2020 entered the fully biodegradable materials track through BASF-licensed PBAT polymerization technology. Today the company has formed three major business segments: tire rubber additives and other chemical products, electronic materials, and fully biodegradable materials, positioning itself as a supplier of functional resins, photoresists and auxiliary chemical products in the midstream of the industry chain, with downstream coverage of tire, automotive, semiconductor and display panel manufacturers. From the revenue structure perspective, tire rubber additives remain the foundation, while electronic materials demonstrate strong high-growth momentum. From 2023 to 2025, the company's total revenue grew from RMB 2.937 billion to RMB 3.421 billion, of which tire rubber additives and other chemical products revenue slightly increased from RMB 2.276 billion to RMB 2.321 billion, with its proportion declining from 77.5% to 67.9%; electronic materials revenue jumped from RMB 561 million to RMB 986 million, with its proportion rising from 19.1% to 28.8%, representing a compound annual growth rate of approximately 32.5%. In the first half of 2026, electronic materials revenue further reached RMB 693 million, up 56.9% year-on-year, accounting for 32.5% of total revenue for the period, while tire additives revenue proportion dropped to 61.9%. In our view, this shift is no coincidence. In recent years, semiconductor photoresist sales have climbed driven by demand from the storage industry, display panel photoresists have benefited from downstream panel capacity expansion and accelerated domestic substitution, and auxiliary solvent sales have surged significantly following the commercialization of G5-grade EBR production, collectively driving the electronic materials segment to become the core engine of the company's revenue growth. The company's product portfolio in semiconductor photoresists covers G-line, I-line, KrF, ArF and other categories, and has established business relationships with multiple leading Chinese 8-inch and 12-inch wafer manufacturers; in the display panel sector, its TFT array photoresists, organic insulating films and OLED light-emitting materials have entered the supply chains of leading panel manufacturers. At the same time, the company's profitability is quite considerable. From 2023 to 2025, the company's net profit grew from RMB 404 million to RMB 577 million, with net margin ranging from 13.8% to 16.9%. In the first half of 2026, the company's net profit reached RMB 389 million, with net margin further rising to 18.2%. This is attributable on one hand to the high gross margin contribution from the electronic materials business, and on the other hand to the company's effective cost control. However, it is worth noting that the company's cash flow situation deteriorated significantly in the first half of 2026, with net cash flow from operating activities plunging from RMB 136 million in the same period last year to RMB 36.55 million. The prospectus explains this is mainly related to an increase in trade receivables, which had climbed to RMB 924 million in total as of June 30, 2026, suggesting investors should pay attention to the liquidity pressure brought by the extended collection cycle. Three Tracks Continue to Diverge, Photoresist Leads the Way From an industry perspective, the three tracks Red Avenue New Materials Group operates in show clear divergence in prosperity. Semiconductor photoresist is the field with the highest technical barriers and fastest growth. According to Frost & Sullivan, China's semiconductor photoresist market is expected to grow from RMB 8.6 billion in 2025 to RMB 13.1 billion in 2030, with a compound annual growth rate of approximately 13.4%, among which ArF photoresist has a compound growth rate as high as 15.2%. The drive comes from continuous expansion of China's wafer capacity and accelerated domestic substitution under supply chain security demands, with domestic photoresists evolving from early small-batch validation to multi-line scale introduction. Tire phenolic resin rubber additives are the company's cash cow business, with the global market expected to grow from approximately RMB 21.9 billion in 2025 to approximately RMB 24.1 billion in 2030, with a compound growth rate of only 1.9%, among which tire phenolic resin rubber additives grow from RMB 5.6 billion to RMB 6.7 billion, with a compound growth rate of approximately 3.6%. Red Avenue New Materials Group firmly holds the top position with a 41.4% global share and 45.9% China share, with customers covering the world's top twenty tire manufacturers. Demand driving growth in this business comes more from new energy vehicles' heightened performance requirements for low rolling resistance and lightweight tires, as well as following downstream tire enterprises going overseas to build production bases in Thailand, but its strategic value is more reflected in providing stable cash flow and serving as the "ballast" supporting electronic materials R&D investment. Fully biodegradable materials are the company's third strategic curve, but also currently a drag on financial performance. The PBAT market is constrained by factors such as the relatively high cost of biodegradable materials, slow downstream application adoption, and industry overcapacity, with demand growth continuing to fall short of expectations. The company acknowledges that despite optimistic long-term prospects, there is uncertainty regarding the timing and intensity of relevant government policy implementation and the development of downstream applications. It is understood that in 2025 the company made certain progress in customer development by developing agricultural mulch film and food packaging materials, and in the first half of 2026 PBAT revenue grew 121.2% year-on-year to RMB 119 million, with gross loss margin narrowing to 5.6%, showing signs of marginal improvement, but still a considerable distance from becoming a profit contributor. Overall, Red Avenue New Materials Group presents a picture of a stable traditional business, high-growth emerging businesses that have not yet fully delivered profitability, and forward-looking strategic positioning that still requires time for execution. Its global leadership position in tire phenolic resin rubber additives provides a solid performance foundation and cash flow support, the rapid volume ramp-up of the electronic materials segment and the domestic substitution logic give the company growth imagination to ride through cycles, while the continued losses in the PBAT business and weakening short-term liquidity indicators constitute realistic constraints that need to be confronted. Looking ahead, the funds raised from this Hong Kong listing will be mainly used for R&D, capacity upgrades, strategic investments and overseas expansion, and the company plans to leverage its capital advantages to further consolidate its moat in high-end electronic materials such as photoresists. Against the backdrop of an upward semiconductor cycle interwoven with intensifying trade frictions, whether Red Avenue New Materials Group can achieve a true global breakthrough by relying on the H-share financing platform remains to be tested by the market.