Tongcheng New Material: A Long-Term Business Owner's Study

Hunting ten-year five-baggers among great growth stocks — pressing the upside question: "Can it get much bigger?"

• QHow high is its market ceiling? Is it enlarging an existing pie, or creating an entirely new market?5/10

  A

  Bottom line up front: Tongcheng New Material's ceiling is a "two-piece splice." Its mature core business (phenolic resins and additives for tires/rubber) is the leader within an existing, mildly growing pie; the electronic chemicals that truly set the upper bound of its imagination space (semiconductor/display photoresists, EBR, CMP polishing pads) are closer to "replacing imported share with domestic share in the China market," essentially domestic substitution carving into an existing stock rather than creating an entirely new market out of thin air. So its ceiling is not low, but it is "substitution-type growth" rather than "creation-type growth," and it lacks the blue-sky quality Baillie Gifford's LTGG most cherishes: "defining a demand that does not yet exist."

  First, the size and growth of the mature business's pie. Rubber additives are a typical mature industrial consumable; the report cites industry data that China's total rubber-additive output grew 3.8% YoY and exports grew 7.71% YoY in 2025, a resilient but slow-growing mid-speed industry. On this narrow track the company ranks first by sales value in tire-use phenolic-resin rubber additives globally and in China, but the fact that "the industry ceiling itself is not high" means this business struggles to support a growth story on its own: it is more of a cash-cow chassis than a growth engine.

  The real ceiling lies in electronic chemicals. On the report's basis, 2025 revenue here was about RMB 986 million, corroborated by the company's annual-report disclosure that electronic-chemicals revenue was nearly RMB 1 billion, up about 32% YoY, with ArF photoresist revenue up more than 800%. Its growth logic is domestic substitution: semiconductor and display-panel photoresists have long been dominated by Japanese, Korean, and U.S. giants, and domestic wafer fabs and panel makers have a strong desire to onboard domestic supply for supply-chain security. In other words, this segment's "ceiling" is about grabbing a share pool that already exists and was originally occupied by importers, rather than the company opening up an entirely new demand: the pie is already there, and the key is how big a slice it can cut.

  Its positioning within this existing pie is indeed near the front. The report cites the H-share application version stating that in the first nine months of 2025 the company ranked first among Chinese suppliers by sales value in both the Chinese semiconductor-photoresist market and the Chinese TFT-array-photoresist market. This is corroborated by public information: its subsidiary Beijing Kehua is the only Chinese company listed by SEMI among the world's top eight photoresist makers; Beixu Electronics is the largest domestic supplier of LCD positive photoresists, with a domestic TFT-photoresist market share of about 25.9% in the first half of 2024 and a share of over 55% at China's largest panel maker. So directionally it does stand at the very front of domestic substitution.

  But to honestly "frame the ceiling correctly": first, this is enlarging an existing pie and grabbing existing import share, not creating an incremental new market, so the imagination space is limited by "how much further the localization rate can rise" rather than "how much demand can grow from nothing"; second, for high-end photoresists at advanced nodes (ArF, ArFi, EUV), truly large-scale domestic ramp-up and stable supply still need time and yield validation, and the 800% growth starts from an extremely low base, so its substance should be discounted; third, even if key materials like photoresists are fully localized, the absolute size of the global/China market is not an internet-scale exponential expansion. On balance, its ceiling is "high enough and worth tracking long term," but it is not the top-tier growth stock in the Baillie Gifford sense of "a brand-new market with compounding expansion": the judgment on this dimension is above average, not top marks.

  Jun 10, 2026
• QCan its revenue at least double over the next five years? Is growth driven mainly by volume, price, or new business?5/10

  A

  Bottom line up front: doubling revenue over the next five years (from about RMB 3.429 billion in 2025 to about RMB 7 billion, corresponding to a five-year CAGR of about 15.4%) is possible but not highly certain, and this increment will lean heavily on the ramp-up of the new electronic-chemicals business, driven mainly by "volume" and aided by structural "price" gains in electronic materials; the mature tire-resin core business can only contribute mid-speed growth and cannot support a doubling. So the answer is "it requires electronic chemicals to keep growing fast," rather than being a foregone conclusion.

  First, a reality check using historical growth. Per the report's compilation from the company's 2020–2025 annual reports, revenue compounded at about 10.9% over these six years, the true slope of a phase where "the mature core dominates and the electronics business is just beginning to ramp." To double revenue over the next five years requires about 15.4% annualized, clearly above the past six years' 10.9%, meaning the company must switch its growth engine from tire resins to electronic chemicals and keep the latter ramping, which is not easy.

  The structural source of the increment is clear: mainly the "volume" of electronic chemicals. On the report's basis, 2025 electronic-chemicals revenue was about RMB 986 million, publicly corroborated as nearly RMB 1 billion, up about 32% YoY, while mature businesses such as tire resins were about RMB 2.320 billion on the report's basis, with mild growth (the report discloses that in 2025 the average selling price of specialty rubber additives and others fell 7.28% YoY, relying on shipment volume and cost pass-through). A simple calculation: if the mature business maintains single-digit mid-speed growth over the next five years (about 3%–5% annualized), it reaches about RMB 2.7–2.9 billion by year five; for total revenue to reach about RMB 7 billion, electronic chemicals would need to grow from about RMB 1 billion to about RMB 4.1–4.3 billion, a five-year CAGR of about 33%–34%, right on par with its current growth magnitude. In other words, the entire weight of the doubling story rests on "whether electronic chemicals can sustain the current 30%+ growth for another five years."

  On drivers, "volume" is the main axis and "price" is the add-on. Volume comes from capacity and customer onboarding: the report discloses the company's under-construction/newly-operational Shanghai Chemical Industry Park photoresist and high-purity reagents, the Changzhou CMP polishing pads (design capacity of 250,000 pieces per year at full production), the Qianjiang positive-photoresist line, and G5-grade EBR already supplying leading domestic advanced chip makers at scale. The price logic is product premiumization: the report notes that in 2025 electronic-chemicals average selling prices rose 14.01% YoY (in contrast with the mature business's price cuts), and public information also shows the share of mid-to-high-end products such as ArF rising and the product mix moving upmarket, meaning that electronic-materials growth carries a real structural price component and is of better substance than pure volume, rather than simply trading price for volume.

  But to honestly flag the risks and avoid calling "possible" "certain": first, high growth in electronic chemicals depends on the pace of domestic substitution, wafer-fab/panel-maker validation and onboarding, and expansion capex, none of which the company controls unilaterally; if downstream slows or validation stalls, the doubling assumption immediately loosens. Second, growth rates like 800% come from an extremely low base; as the base grows larger, the same absolute increment corresponds to a naturally declining percentage growth rate, so sustaining 33% for five years is harder than in year one. Third, the mature core is affected by tire-industry conditions and swings in raw-material (phenol) prices; the report notes its seasonal demand softness in July–August, and that in 2021 rising raw-material and freight costs cut net profit attributable to the parent by 20.44% YoY, so it is not a stable growth contributor. Overall judgment: doubling in five years is an "optimistic but reachable" target, with growth driven mainly by electronic-chemicals volume and aided by price, at medium certainty. This is precisely one of the core reasons the report classes it a high-growth asset yet declines to rate it a buy at the current valuation.

  Jun 10, 2026
• QFive years from now, what will take over as the next growth engine? Does this "second curve" exist today?5/10

  A

  Bottom line up front: Tongcheng New Material's "second curve" already clearly exists today and is being delivered: the electronic-chemicals platform (semiconductor photoresists, display-panel photoresists, G5-grade EBR, CMP polishing pads, etc.). This is a real business that already reached about RMB 986 million in revenue in 2025 with 30%+ growth, not a distant pie drawn on a slide. The question is not "whether the second curve exists," but "whether, from years three to ten, it can grow from a 'second curve' into the absolute dominant one, and whether this time it takes over on the strength of profit quality rather than cash-burning subsidy."

  First, confirm the second curve's reality. On the report's basis, 2025 electronic-chemicals revenue was about RMB 986 million, corroborated by public data as electronic-chemicals revenue nearly RMB 1 billion, up about 32% YoY, with ArF photoresist revenue up more than 800%. More crucially, it has already formed a "platform" rather than a single-point product: the report discloses the company has built multiple product lines including semiconductor photoresists, display-panel photoresists, EBR, organic insulating films, luminescent materials, and CMP polishing pads, of which G5-grade EBR has achieved scaled supply to leading domestic advanced semiconductor chip makers, and the Changzhou CMP project's design capacity at full production is 250,000 pieces per year. This is a real curve that is "in the process of taking over," visible on the statements today without relying on imagination.

  The underlying logic of the handover also holds: the business structure is systematically tilting toward electronic chemicals. Based on operating data, the report estimates the electronic-chemicals revenue share rose from about 22.8% on a comparable basis in 2024 to about 28.8% in 2025, and in Q1 2026 electronic-chemicals revenue already reached RMB 310 million with its share holding high. In other words, more and more of the "marginal increment" in the company's revenue growth in recent years comes from electronic materials rather than tire resins; this is the standard form of "the second curve gradually supplanting the first."

  So what is "the engine after that" (the third curve)? The report also shows depth in the layout: first, moving upmarket within photoresists along the process (KrF → ArF → more advanced nodes), with unit price and barriers rising step by step; second, laterally expanding categories of "electronic materials beyond photoresists" such as CMP polishing pads, EBR, and high-purity reagents, turning itself from a "photoresist company" into a "semiconductor-materials platform"; third, the fully biodegradable materials mentioned in the report (about RMB 113 million in 2025) have a policy theme, but the report explicitly notes their demand and profitability are unstable, so for now they look more like a third-tier option than a reliable successor. So the realistic judgment is: the third curve is hidden within the electronic-materials platform's "category expansion + process upgrade," rather than starting a brand-new track.

  But we must honestly add the implicit premise Baillie Gifford values most: "the self-extensibility of the core business." For the second curve to truly take over, two things must hold at once: one, electronic chemicals cannot rely only on trading price for volume; the report repeatedly stresses watching for "stable ramp-up after validation passes" rather than sacrificing margins to chase scale. Two, profit quality must keep up, which is precisely the current biggest soft spot: the report notes that over the six years 2020–2025 cumulative operating cash flow was only about 56% of cumulative net profit attributable to the parent, and that about 57% of 2024 total profit came from associate-company earnings (mainly the equity stake in Zhongce Rubber), with the operating cash flow / net profit ratio below 1 for many consecutive years, about 0.45 in 2024. In other words, the second curve's "revenue handover" has already happened, but the "cash-flow handover and self-operated-profit handover" is not yet complete. Overall judgment: the second curve does exist today and is ramping, which is the company's biggest highlight; but whether it can convert from "growth imagination" into "high-quality free cash flow" is the real crux to verify over the next five to ten years. That is exactly why the report lists "the electronic-chemicals revenue share rising to 35%–40% without relying on low prices, the share of associate earnings falling, and operating cash flow / net profit rising above 80%" as the key signals that would change its call to buy.

  Jun 10, 2026
• QWhat is its core competitive advantage? Will this moat widen or narrow over the next three to five years?5/10

  A

  Bottom line up front: Tongcheng New Material has "two moats, two trajectories." The mature moat in tire-use phenolic resins/rubber additives is already fairly wide and stable (built on scale, formulation stickiness, and long-term customer relationships) and will roughly hold over the next three to five years; the electronic-chemicals moat that truly determines valuation cannot yet be called "wide and deep," but it is in a widening channel, built on validation barriers, first-mover share, and the domestic-substitution window. So the overall trend is "widening," but the speed and certainty of that widening depend on whether electronic materials can convert first-mover advantage into sustainable yield, customer lock-in, and pricing power, rather than being caught up by peers.

  First, the mature business's moat: it is fairly wide but no longer expanding. The report cites the H-share application version: the company ranks first by sales value in the global and Chinese market for tire-use phenolic-resin rubber additives and has for many consecutive years been China's largest producer of rubber phenolic resins, reinforcing resins, and adhesive resins. This moat comes from scale (the report says the company has seven major production facilities), formulation and quality stability, and long-term customer relationships with tire makers, which a rival would need time and customer trust to replicate. But the report also honestly notes that price increases in this business lean toward cost pass-through and do not constitute strong pricing power (in 2025 the average selling price of specialty rubber additives and others fell 7.28% YoY), making it a "wide and stable, but hard to widen further" cash-cow-type moat.

  The electronic-chemicals moat is narrower but widening, which is the key. The report is clear on the source of its barriers: photoresist/EBR/CMP products involve validation and yield lock-in, and once a customer onboards, switching costs are high (a switching-cost moat), plus the independent IP of semiconductor photoresists and the high-purity and stability thresholds (a patent/technology moat). The evidence of "widening" is share and product strength: the report cites the H-share application version that in the first nine months of 2025 the company ranked first among Chinese suppliers by sales value in both the Chinese semiconductor-photoresist and Chinese TFT-array-photoresist markets, consistent with public information: its subsidiary Beijing Kehua is the only Chinese company selected by SEMI among the world's top eight photoresist makers, and Beixu Electronics has a TFT-photoresist share of over 55% at China's largest panel maker and a domestic TFT-photoresist market share of about 25.9% in the first half of 2024. Meanwhile, ArF photoresist revenue grew more than 800% and the product mix keeps moving upmarket, showing it is climbing toward higher-barrier links along the process. Once validation passes and share is secured, this moat will be deeper than the mature core's.

  But to honestly flag "why it is not yet wide and deep" and avoid overstating. First, the electronic-materials moat is for now more "first-mover validation advantage + domestic-substitution window"; the report explicitly says it is still far from the absolute barriers of top-tier international materials companies, and the window was opened by policy and supply-chain security, not entirely by the company's own non-replicable barriers. Second, the track is crowded with rivals; the report names Shanghai Sinyang, Jingrui Electronic Material, Nata Opto-electronic, and others all laying out in semiconductor materials, with Jingrui Electronic Material being the only domestic company covering the full G/I-line, KrF, and ArF range, and Shanghai Sinyang pursuing photoresist + supporting-material synergy; the domestic-substitution dividend is contested by everyone, and first-mover does not equal winner-take-all. Third, for the moat to truly "widen" it must withstand two tests: continued attainment of yield and stable supply, and retaining customers without price cuts (the report repeatedly stresses watching for stable ramp-up after validation passes rather than trading margins for volume).

  Overall judgment: over the next three to five years the moat's direction is "widening," driven mainly by consolidation of electronic-materials share and process upgrades, which is the company's most promising long-term variable; but the widening is "in progress," not "complete," and its purity and certainty still fall short of a global materials giant that has already won. The report's item-by-item moat assessment (brand medium, cost medium-to-strong, scale above industry, network effect weak, electronic-materials switching cost fairly strong) combines to a moat strength of 3/5. This "medium" judgment essentially acknowledges that it "has a real moat and is widening it, but has not yet reached the wide-and-deep level where you can hold with your eyes closed."

  Jun 10, 2026
• QIf its core business were disrupted, does it have the gene to reinvent itself? How does it treat mistakes and bad news?5/10

  A

  Bottom line up front: Tongcheng New Material has already proven its "reinvention gene" through its own history. It transformed proactively from a trading company that started as a commercial agent for specialty rubber additives into an integrated "R&D + manufacturing + sales" materials enterprise, then used the mature business's cash flow to incubate an electronic-chemicals platform, which is itself a successful core-business leap. So on the question "if the core business were disrupted, does it have the ability to reinvent itself," the company's actions over the past dozen-plus years have already given a positive answer. On treating mistakes and bad news, the baseline looks fairly clean from the audit and internal-control record, but the company has no mature, testable record of "publicly reviewing a major mistake," so on this dimension one can only say "the compliance baseline is solid, but there is a lack of stress-test samples."

  First, the empirical evidence of the reinvention gene. The company path the report discloses is telling: founder Zhang Ning founded Tongcheng Chemical in 1999, initially engaged mainly in commercial agency for specialty rubber additives, then gradually built R&D and manufacturing capabilities and became a tire-resin leader; and around 2020, through acquiring Beijing Kehua and Beixu Electronics, it entered semiconductor and display photoresists, forcibly growing an electronic-materials second curve beyond the traditional-chemicals core. The report's judgment on this is "the company started in trading and gradually built an R&D + manufacturing + sales platform; execution is not weak." This "trader → industrial-products leader → electronic-materials platform" trajectory is exactly the gene Baillie Gifford calls "a core business that can be self-extended and will not be locked in by a single technological shift": it proactively built itself a second life, rather than passively waiting to be disrupted.

  This gene continues today. The report discloses the company is still expanding along the electronic-materials platform both laterally and vertically: building the Shanghai Chemical Industry Park photoresist and high-purity reagent project, the Changzhou CMP polishing-pad project, and the Qianjiang positive-photoresist line, with G5-grade EBR already supplying leading domestic advanced chip makers at scale. In other words, reinvention is not a one-off event but an ongoing action of "using the cash cow to raise a growth curve": even if one day the old tire-resin lifeline is weakened by new-energy/new-materials trends, the company has already shifted its center of gravity toward electronic materials in advance, leaving a buffer.

  But to honestly handle the "how it treats mistakes and bad news" half and avoid ungrounded elevation of management's character. What the report can offer are positive signals at the compliance level: annual reports over the years all received a standard unqualified opinion audit report from Ernst & Young Hua Ming, the 2025 internal-control evaluation report says internal controls are effective, and the audit-committee report states that no material accounting errors, fraud, malpractice, or material misstatements were found. This shows that on the baseline of "not concealing financial problems," the company is currently clean. But the report offers no case of management publicly admitting a strategic error, proactively writing down, or reviewing a failed project, so on "whether it is candid in the face of bad news and corrects course quickly" there is a lack of testable stress samples: it has not exposed any obvious integrity flaw, but it has not yet been through a real crisis test either.

  There is one more "bad-news-handling observation point" that must be flagged: the candor about profit quality. The report notes that about 57% of 2024 total profit came from associate-company earnings, with the operating cash flow / net profit ratio below 1 for many consecutive years (about 0.45 in 2024); this kind of structural weakness of "profit not of high substance" is disclosed by the company in the annual report on a stated basis and not deliberately hidden, which counts as positive; but the market and some sell-side still tend to treat it under a "pure photoresist leader" narrative, and whether management will proactively correct this overly optimistic expectation in the context of H-share progress and refinancing is the real touchstone for observing whether it "treats bad news honestly."

  Overall judgment: on the reinvention-gene dimension, the company is a clear plus, with real transformation evidence that is still continuing; on treating mistakes and bad news, the compliance baseline is solid and disclosure is transparent on a stated basis, but it lacks a sample of publicly reviewing and correcting course after a major mistake, so it can only earn a "neutral-to-positive, to be observed." This is also consistent with the report's overall judgment that "management is trustworthy (rated pass on the checklist), but capital allocation is only moderately rational (score 3/5)."

  Jun 10, 2026
• QDoes management (especially the founder) have long-term vision, with interests deeply tied to the company? Is it willing to sacrifice current profit for five to ten years out?6/10

  A

  Bottom line up front: on "the founder's interests being deeply tied to the company," Tongcheng New Material is a clear plus. Founder and chairwoman Zhang Ning controls about 60% of the company's equity through controlled entities, so control is highly concentrated, and the principal-agent problem of "salaried professional managers arbitraging short-term" is almost absent; on "long-term vision, willing to sacrifice current profit for five-to-ten years out," it also basically holds: for years the company has continuously invested the mature core's money into the electronic-materials platform and depressed current margins to trade for long-term capacity and validation, which is precisely behavioral evidence of long-termism. The only discount to apply for conservative investors is: high alignment does not equal returns inevitably tilting toward existing shareholders, and continued expansion + H-share financing means future per-share returns may be diluted.

  First, interest alignment, the hardest fact. The report cites the H-share application version disclosing that founder and chairwoman Zhang Ning is the controlling shareholder, and on the disclosed basis her controlled stake is about 60.82% of the A-shares. Public information corroborates this high concentration from another angle: Zhang Ning holds about 60% of the listed company in aggregate through controlled entities such as Tongcheng Investment and Weizhen Holdings, and is the actual controller (different sources vary slightly due to A-share basis / total-share-capital basis and timing, but the conclusion "the founder controls about 60% and holds control firmly" is consistent). This means Zhang Ning's personal wealth and the company's long-term value are one and the same: she has no incentive to engage in short-term financial engineering that harms the company's long-term value, which is the classic structure Baillie Gifford values most, "the founder betting heavily and sitting in the same boat as shareholders."

  Next, long-term vision, where the company's actions rather than slogans give the answer. The capital-allocation main line the report describes is "using the mature business and capital-market tools to incubate an electronic-materials platform": successively taking control of Beijing Kehua, Beixu Electronics, Kehua Microelectronics, and others to enter photoresists, and continuously building projects such as Shanghai Chemical Industry Park photoresist and high-purity reagents, Changzhou CMP polishing pads, and the Qianjiang positive-photoresist line. These are all "invest first, return later" actions that depress current margins and free cash flow; the report notes the company is "a platform company that keeps expanding capacity and investing," not a capital-light compounding machine. Being willing to sacrifice current cash-flow comfort for electronic-materials share five-to-ten years out is precisely the evidence of "sacrificing current profit for the long term"; and ArF photoresist revenue up more than 800% and electronic-chemicals revenue near RMB 1 billion show these long-term investments have begun to bear fruit, not ineffective cash-burning.

  The integrity and governance baseline also support the "trustworthy" judgment. The report discloses that annual reports over the years all received a standard unqualified opinion audit report from Ernst & Young Hua Ming, the 2025 internal-control evaluation says internal controls are effective, and the audit committee found no material accounting errors or fraud. The report directly rates "is management trustworthy" as "pass" on the checklist. There is no obvious flaw here.

  But we must honestly add the implicit premise conservative investors must reckon with: alignment does not automatically mean the returns are yours. The report clearly points out the cost: one, the company has no record of "large-scale buybacks at significant undervaluation," and rewards shareholders more through a combination of dividends + equity incentives + convertible bonds (the report discloses proposed dividends of RMB 5.90, RMB 5.00, and RMB 5.00 per 10 shares for FY2023/2024/2025), decent in intensity but not with "maximizing per-share intrinsic value" as the top priority; two, in 2026 the company has advanced an H-share listing, and the report bluntly says this means management still wants more capital ammunition, and "future per-share returns may not naturally benefit from scale expansion," a potential dilution for existing shareholders. In other words, the founder does want to grow the pie and is willing to sacrifice the present for the long term, but "the per-share slice existing shareholders get from the enlarged pie" will be diluted by continued financing, the other side of high alignment.

  Overall judgment: the "long-term vision + deep interest alignment" of management, especially the founder, is one of the few places Tongcheng New Material can score high, consistent with the report's "management and capital-allocation score of 3/5, trustworthiness rated pass"—3 points rather than higher, with the deduction coming not from integrity or vision but from the capital-allocation details conservative investors care about: "high capital needs, a lack of buyback discipline at undervaluation, and refinancing that may dilute per-share returns."

  Jun 10, 2026
• QIf it disappeared tomorrow, how much would customers miss it? Is its growth model sustainable and free from reliance on harming society and regulation?5/10

  A

  Bottom line up front: if Tongcheng New Material disappeared tomorrow, those who would "miss" it most are domestic semiconductor and display-panel customers: it is a scarce supplier of domestic photoresists/electronic materials, with considerable indispensability on the matter of supply-chain security; tire-resin customers would also be inconvenienced (it ranks first in global/China sales in that niche), but substitution is relatively less difficult. On "whether the growth model is sustainable and free from reliance on harming society and regulation," the company is a clear positive: its growth is built precisely on directions encouraged by national policy (domestic substitution of key materials, supply-chain autonomy), and it strengthens the supply chain rather than harming society, so regulation is a tailwind, not a headwind.

  First, "indispensability," which must be viewed by the two businesses. The electronic-chemicals side is most indispensable: the report cites the H-share application version that in the first nine months of 2025 the company ranked first among Chinese suppliers by sales value in both the Chinese semiconductor-photoresist and Chinese TFT-array-photoresist markets. Behind this is real scarcity: its subsidiary Beijing Kehua is the only Chinese company listed by SEMI among the world's top eight photoresist makers, and Beixu Electronics has a TFT-photoresist share of over 55% at China's largest panel maker. Photoresist is a chokepoint material in chip/panel manufacturing, long dominated by Japanese, Korean, and U.S. giants, so domestic substitutable options are inherently scarce; the report also stresses these products involve validation and yield lock-in with high customer switching costs. In other words, for wafer fabs and panel makers advancing supply-chain localization, losing a domestic supplier like Tongcheng New Material that has already passed validation and supplies at scale (G5-grade EBR already supplying leading domestic advanced chip makers at scale) is a genuine loss, precisely the sense of indispensability Baillie Gifford calls "customers truly missing it."

  The tire-resin side's indispensability is a notch lower. The report cites the H-share application version that the company ranks first by sales value in the global and Chinese market for tire-use phenolic-resin rubber additives and has for many consecutive years been China's largest producer of rubber phenolic resins, with customer stickiness coming from formulation and quality stability and long-term relationships. But the report also honestly notes that price increases here lean toward cost pass-through and do not constitute strong pricing power, and that "tire additives have formulation stickiness but substitution is not impossible." So if it disappeared, tire makers would experience switching costs and short-term pain but could ultimately find a substitute: this side is an "important supplier," not "irreplaceable."

  Next, customer concentration as corroboration. The report cites the H-share application version disclosing that for FY2023, FY2024, and the first nine months of 2025 the company's customer counts were 610, 605, and 661; the top-five customer revenue share was about 28.1%, 28.4%, and 29.9%, and the largest customer's share about 11.3%, 11.7%, and 10.7%. Customers are neither extremely concentrated (unlike a fragile supplier dependent on a single large customer) nor without several key customers bound long term; this "dispersed but sticky" structure shows it constitutes a "would-be-troublesome-to-lose" presence for a batch of customers, rather than being dispensable.

  Most crucial is "the social and regulatory sustainability of the growth model," a dimension where Tongcheng New Material is almost textbook-positive. Its core growth engine, the domestic substitution of electronic materials such as semiconductor/display photoresists, EBR, and CMP, is exactly a direction strongly encouraged by national industrial policy. The report notes the company stresses in both its 2024 and 2025 annual-report summaries the rising importance of self-sufficient domestic supply of key semiconductor and display materials, and public opinion generally positions it as a representative enterprise of domestic substitution in domestic photoresists/semiconductor materials. It earns money by "replacing imports with domestic products and filling chokepoint gaps," and it grows without harming consumers, evading regulation, or creating negative social externalities: regulation is a tailwind for it (policy support, inclusion in encouraged tracks), not a Sword of Damocles that could fall at any time. The biodegradable-materials business likewise rides an environmental-policy theme; although its earnings are unstable, its direction has no social/regulatory hazard either.

  Overall judgment: Tongcheng New Material has fairly strong indispensability on the electronic-materials side and medium on the tire side, a "dispersed but sticky" customer structure, and a growth model highly aligned with national strategy, with social and regulatory sustainability a plus; on this dimension the company stands firm. Its real soft spot lies not in "whether customers miss it" or "whether regulation allows it to grow," but in the "whether the certainty of growth realization matches the current valuation" repeatedly pointed out in the earlier questions.

  Jun 10, 2026
• QHow are the unit economics of this business (gross margin, incremental returns)? Do they improve or worsen as scale grows? Where is the money it earns spent?4/10

  A

  Bottom line up front: Tongcheng New Material's unit economics are "a two-layer structure, improving in direction but ordinary in substance." Electronic chemicals' unit economics are clearly superior to tire resins' (higher gross margin, real pricing power, improving as scale grows), while tire resins are a medium-margin, cost-pass-through industrial product; overall, growing scale improves the structure (the share of high-margin electronic materials rises), but the company's biggest unit-economics wound is that "the efficiency of converting the accounting profit it earns into free cash flow is not high," and the money earned is spent mainly on continuously expanding electronic-materials capacity. So it is a growth-type materials company whose "unit economics are improving but whose cash conversion is discounted," rather than a high-quality compounding machine that "earns more the bigger it gets, and earns all cash."

  First, the two-layer divergence in gross margin and pricing power, the core of unit economics. The report's contrast is clear: in 2025 the average selling price of specialty rubber additives and others fell 7.28% YoY (maintaining profitability via the cost side, where the average purchase price of phenol fell 13.16% YoY), while the average selling price of electronic chemicals rose 14.01% YoY. The report accordingly judges: the tire-resin business is more of a "cost-plus + industry-game" industrial product, with price increases leaning toward cost pass-through and no strong pricing power; electronic chemicals, with high validation thresholds, in theory have stronger pricing ability and thus more potential pricing power. On a consolidated basis, the report discloses gross margin rose from roughly 23.7% to 24.8% over 2023–2024, and in 2025, with electronic-materials price increases + raw-material declines, it most likely did not deteriorate. This shows the high-margin, pricing-power segment (electronic materials) is growing larger, and the "quality" of unit economics is improving.

  Next, "does it improve or worsen as scale grows": the direction is improvement, and the logic is structural upgrade rather than mere dilution. Based on operating data, the report estimates the electronic-chemicals revenue share rose from about 22.8% on a comparable basis in 2024 to about 28.8% in 2025 (Q1 2026 this business's revenue was RMB 310 million, with its share holding high). Because electronic materials' gross margin and pricing power both exceed tire resins', a rising share itself lifts the company's overall unit economics; add the rising share of mid-to-high-end products such as ArF and the continued upmarket shift in product mix, and the "substance" of incremental revenue is improving. This is why growing scale is a positive for it: the product mix migrates toward the high-margin end, rather than making more of the same low-margin product.

  But we must honestly point out the weakest link in unit economics: incremental returns and cash conversion. First, the efficiency of converting accounting profit into cash is not high: the report notes that over the six years 2020–2025 cumulative operating cash flow was only about 56% of cumulative net profit attributable to the parent, further corroborated by public data that the operating cash flow / net profit ratio was below 1 for many consecutive years, about 0.37 in 2022, about 0.46 in 2023, and about 0.45 in 2024. Second, a considerable chunk of profit is not cash earned from operations: the report notes that in 2024 the company's share of associate-company profit was about RMB 314 million, about 57% of total profit, and this equity-method income is inherently not 100% currently distributable cash. In other words, "for every yuan of profit the company earns, the free cash that lands in its pocket" is clearly less than at a typical high-quality manufacturer, the place its unit economics most deserve a discount. The report's conservative Owner-Earnings range of about RMB 450–600 million (neutral about RMB 520 million), below its RMB 563 million net profit attributable to the parent, quantifies exactly this.

  Finally, "where the money earned is spent": mainly into electronic-materials capacity expansion, with sound industrial logic but consuming cash. The report discloses that fund flows concentrate on building Shanghai Chemical Industry Park photoresist and high-purity reagents, Changzhou CMP polishing pads (design capacity of 250,000 pieces per year at full production), and the Qianjiang positive-photoresist line, as well as acquiring controlling stakes in Beijing Kehua/Beixu Electronics/Kehua Microelectronics; meanwhile it maintains some dividends (proposed RMB 5.00 per 10 shares for FY2025). The report's judgment on this: these allocations "make sense from an industrial-logic standpoint," but the company is "a platform company that keeps expanding capacity and investing," not a capital-light compounding machine, and has no discipline of large-scale buybacks at significant undervaluation. In other words, the money is spent with strategic reason (into the high-margin growth curve), but the intensity of spending also means free cash flow will be continuously tied up.

  Overall judgment: on unit economics, the electronic-materials side is genuinely good (high margin, pricing power, better as scale grows), and the tire-resin side is a medium industrial product; the overall direction improves due to structural upgrade, which is the highlight. But "incremental returns" deserve two discounts: the cash-conversion ratio is persistently low, profit contains associate non-cash income, and much of the money earned is reinvested into expansion. So its unit-economics profile is "quality improving, but cash substance ordinary, and highly reinvested," fully matching the report's checklist judgment of "is return on capital excellent = partial pass, can it generate stable free cash flow = fail"—which is also the financial root cause of the report acknowledging it a good growth asset yet declining to rate it a buy at the current valuation.

  Jun 10, 2026
• QFor it to rise fivefold in ten years, which conditions must hold simultaneously? Are these conditions realistic? What expectations does today's share price imply?2/10

  A

  Bottom line up front: for Tongcheng New Material to rise fivefold in ten years from the current price (as of the June 10, 2026 close, about RMB 59.77, total market cap about RMB 36.8 billion; on the report's snapshot basis of May 20, 2026, about RMB 62.88, market cap about RMB 37.25 billion), multiple high-difficulty conditions must hold "simultaneously": electronic chemicals ramping fast over the long term, profit quality switching from "associate + non-cash" to "self-operated operating cash flow," valuation multiples not contracting sharply, and refinancing not diluting significantly; while today's share price (on the report's basis, adjusted PE about 62x, PB about 8.6x) already implies the optimistic expectation that "the electronic-materials story most likely succeeds, and the company is treated as a high-growth platform rather than a mature specialty-materials + investment-income stock." So "fivefold in ten years" is not impossible, but it requires "a whole chain of good things all happening," and the odds are not friendly to conservative investors.

  First, list clearly the conditions "fivefold in ten years" requires to hold simultaneously (the implicit premise Baillie Gifford would add). A market cap from about RMB 36.8 billion to about RMB 184 billion corresponds to about 17.5% annualized over ten years; decomposed into fundamentals and valuation layers, at least four things must happen together:

  First, electronic chemicals must maintain growth far above the company's overall rate over the long term. Its current revenue on the report's basis is about RMB 986 million, up about 32% YoY, with ArF photoresist up more than 800%; the fivefold story requires this segment to grow from about RMB 1 billion to the several-billion-yuan scale and become absolutely dominant. The report lists "the electronic-chemicals revenue share rising to 35%–40% without relying on low prices" as a call-change signal, precisely this condition.

  Second, profit quality must undergo a fundamental switch. The report notes that about 57% of 2024 total profit came from associate-company earnings, the operating cash flow / net profit ratio was below 1 for many consecutive years and about 0.45 in 2024, and cumulative operating cash flow over six years was only about 56% of cumulative net profit attributable to the parent. For fivefold to be realized, "the share of associate earnings must fall and operating cash flow / net profit must rise above 80%" (the report's own call-change condition), or the market will sooner or later re-price it on "non-cash profit + high capex."

  Third, valuation multiples cannot contract sharply. The current adjusted PE of about 62x on the report's basis starts from an extremely high point; if over ten years growth is realized and the market lowers PE to a more reasonable 25–35x (the reversion assumption in the report's relative valuation), then even if profit surges greatly, the share-price gain would be heavily offset by "valuation compression": fivefold requires "high growth + valuation not collapsing" to hold simultaneously.

  Fourth, refinancing cannot dilute significantly. The report discloses that in 2026 the company has advanced an H-share listing, and continued expansion needs capital, bluntly stating "future per-share returns may not naturally benefit from scale expansion." Fivefold is calculated on a "per-share" basis; if multiple rounds of financing dilute the share capital during the period, a fivefold rise in total market cap ≠ a fivefold rise in share price.

  Next, "what expectations does today's share price imply," the part that most deserves a cool head. The report's three-scenario DCF gives the answer: the conservative scenario (Owner Earnings RMB 450 million, growth 6%) yields an intrinsic value of about RMB 13–18/share, the neutral scenario (RMB 520 million, growth 10%) about RMB 20–28/share, and the optimistic scenario (RMB 600–650 million, growth 15%, discount rate lowered to 8%–9%) only about RMB 40–56/share. The report's conclusion is blunt: even in the optimistic scenario, the result only barely approaches or is still below the current price. This means the current price of about RMB 60 implies an expectation "even more optimistic than the report's optimistic assumption": the market has already priced in "long-term high-speed success in electronic materials, and the cash-flow problem being solved" as a high-probability event.

  Relative valuation likewise corroborates this optimistic over-discounting. The report cites the Reuters/LSEG basis: Tongcheng New Material's adjusted PE is about 62.25x and PB about 8.62x, while the CSI 300's current market-cap-weighted PE is about 14.6x with a corresponding earnings yield of about 6.8%; Tongcheng's corresponding earnings yield is only about 1.6%. In other words, buying it is buying "the realization of high growth over a very long future period," rather than "already-realized cash returns." The report also honestly notes that its PB is even higher than some pure semiconductor-materials comparables (Shanghai Sinyang about 6.73x, Jingrui Electronic Material about 6.58x), showing the market has given not only a growth premium but also a relatively high asset premium.

  Overall judgment: fivefold in ten years requires four hard things to hold simultaneously—"electronic materials keep growing fast + profit quality fundamentally improves + valuation does not contract sharply + it is not diluted by financing"—each of which is realistically possible but uncertain, and stacked together the probability is not high; while today's price of about RMB 60 has already front-run "these good things most likely happening," so the margin of safety is insufficient. This is precisely the core logic of the report's "Watch" rather than "buy": it is not bearish on the business; it is that the current price asks you to pay full price for a string of yet-unrealized optimistic assumptions.

  Jun 10, 2026
• QWhy has the market not yet realized all this? Is it that it can't understand, looks down on it, or can't see far enough? What will become the "narrative inflection point"?3/10

  A

  Bottom line up front: this question needs to be reversed first. For Tongcheng New Material, the market is precisely not "yet to realize" but "already fully, even possibly over-, aware" of its electronic-materials story. On the report's basis, adjusted PE about 62x, PB about 8.6x, and the sharp share-price rise over the past year (from a 52-week low of about RMB 27.70 to the current about RMB 60) all show that the domestic photoresist/semiconductor-materials substitution narrative has long been market consensus and priced at a high level. So the more realistic perception gap lies not in "the market not understanding how good this company is," but in "the market possibly not seeing clearly how fragile its profit quality and business structure are": the real reverse perception gap is downward, not upward. The possible narrative inflection point is precisely the moment these overlooked flaws are verified or falsified.

  First, argue that "the market has already realized, rather than not." The standard use of this Baillie Gifford question is to find "an undervalued great company," but applied to Tongcheng New Material one must honestly admit the premise does not hold. There are three pieces of evidence: one, the valuation is already very expensive—the report cites the Reuters/LSEG basis of adjusted PE about 62.25x and PB about 8.62x, a corresponding earnings yield of only about 1.6%, far above the CSI 300's about 14.6x PE; two, it has been placed by the market into the semiconductor-materials-platform valuation basket, and the report notes that when the market values it, "it often compares it with semiconductor-materials platform companies rather than with traditional resin factories"; three, the catalysts have been thoroughly hyped—ArF photoresist revenue up more than 800% and electronic-chemicals high growth near RMB 1 billion, plus the H-share listing progress, are all positives the market has repeatedly narrated and priced. A company given a 62x PE can hardly be said to be one the market "looks down on or can't see far enough on."

  So what is actually relatively overlooked by the market? The "downward" perception gap: profit quality and structural fragility. The report points out the most compelling counter-view: the market may be overestimating the speed at which the "electronic-materials story" transforms the whole company. Two facts masked by the narrative: first, in 2025 about 68% of revenue still came from specialty rubber additives and others, so the company is far from a "pure photoresist leader," and pricing it as pure electronic materials creates a business-structure mismatch; second, about 57% of 2024 total profit came from associate-company earnings (mainly the equity stake in Zhongce Rubber), with the operating cash flow / net profit ratio below 1 for many consecutive years and about 0.45 in 2024, meaning a considerable part of profit is not cash recovered from core operations. In other words, the market is paying for "high growth, high valuation" but may be underestimating the risk of its "non-cash profit + high capex + high valuation" combination—that is the part "not seen clearly."

  Relative valuation again corroborates this optimistic over-discounting. Citing data, the report shows Tongcheng's PB of about 8.62x is even higher than Shanghai Sinyang's about 6.73x and Jingrui Electronic Material's about 6.58x, showing the market has given not only a growth premium but also layered on a relatively high asset premium. Giving such a valuation to a company where about 70% of revenue still comes from industrial products and profit contains large associate earnings itself shows that "electronic-materials imagination space" already carries a very full weight in the pricing: the room for further upward re-rating is limited, and the risk of downward correction is underestimated.

  So "what will become the narrative inflection point" (the key Baillie Gifford would add)? It splits into upward and downward types. Upward inflection (making bulls more resolute): the call-change signals the report lists—the electronic-chemicals revenue share continuing to rise to 35%–40% without relying on low prices, the share of associate earnings in profit falling noticeably, operating cash flow / net profit rising stably above 80% in the medium term, and the return on H-share and financing projects clearly above the cost of capital; once these are confirmed, the narrative upgrades from "story" to "realization," and the expensive valuation gets caught up by fundamentals. Downward inflection (making the narrative break): the report's "signals that trigger reassessment" are clear—electronic chemicals growing below expectations for several consecutive quarters, operating cash flow again falling clearly below net profit, refinancing large in scale but with unclear project returns, key-customer validation failing or the pace of domestic substitution slowing, and a decline in associate earnings materially pressuring profit; if any occurs, the market may re-price it from a "high-growth electronic-materials platform" back to a "mature specialty-materials + investment-income stock," and the report estimates this re-pricing corresponds to the share price returning to about RMB 22–33, a drop of about 45%–65% from the current price.

  Overall judgment: Tongcheng New Material's reality is "the story has already been fully priced, and the test is whether it can be realized," rather than "a pearl gathering dust, waiting for the market to discover it." The real perception gap is downward: the market may be underestimating the fragility of its profit quality and business structure. The narrative inflection point is therefore two-way: upward depends on whether cash flow and the electronic-materials share can be solidly realized, downward on the falsification of any core assumption (growth rate, cash flow, associate dependence, financing returns). This is also the essence of the report's "Watch": a good company, an expensive price, a full narrative, waiting for fundamentals to verify or falsify this optimism, rather than waiting for the market to "finally understand."

  Jun 10, 2026