Fuxiang Shares Expects Net Profit of 350-430M Yuan in First Three Quarters, Driven by Lithium Battery Additives

Strong Q3 Performance Caps a Remarkable Turnaround

On September 18, Fuxiang Co., Ltd. (300497.SZ) released its performance forecast for the first three quarters of 2026, projecting net profit attributable to shareholders of between RMB 350 million and RMB 430 million, representing a year-on-year increase of 658% to 785%.

In the first half of 2026, Fuxiang reported revenue of RMB 888 million, up 72.59% year-on-year, and net profit attributable to shareholders of RMB 177 million, compared to a loss of RMB 6.91 million in the same period last year. Based on these figures, Q3 quarter-on-quarter growth from Q2 is estimated at 50% to 119%, indicating continued volume expansion.

This turnaround comes after four consecutive years of losses from 2022 to 2025:

• 2022: Loss of RMB 141 million
• 2023: Loss of RMB 201 million
• 2024: Loss of RMB 272 million
• 2025: Loss of RMB 55.03 million

Total cumulative losses over four years: approximately RMB 670 million.

The question now is whether this recovery is driven by luck or fundamental strength.

Lithium Battery Additives: Rising Volumes and Prices

Fuxiang operates three main business segments: pharmaceutical manufacturing, lithium battery additives, and microbial protein. In 2021, its subsidiary Weifang Aotong Pharmaceutical (now Fuxiang Shandong) obtained environmental approval for a lithium battery additive project, leveraging fluorination technology from pharmaceutical synthesis to transition from active pharmaceutical ingredients to electrolyte additives.

According to the company's announcement, the key driver behind the Q1-Q3 performance reversal was the simultaneous increase in both volume and price of new energy lithium battery electrolyte additives.

Historical Context: Losses from New Energy Investments

From 2022 to 2024, Fuxiang's revenue remained relatively stable, but net profits were consistently negative. The core reason was that the new energy lithium battery additive business dragged down overall gross margins during its initial production phase.

Gross margins for the lithium battery additive business during this period:

| Year | Gross Margin | |------|-------------| | 2022 | -31.93% | | 2023 | -6.96% | | 2024 | -8.39% |

The cumulative losses from the new energy business over three years significantly eroded the profit contributions from the pharmaceutical segment.

Current Performance: Lithium Battery Additives Lead Growth

Breaking down the half-year report:

• Lithium-ion battery materials business: Revenue of RMB 445 million, up 266% year-on-year, with a gross margin of 52.52%
• Pharmaceutical manufacturing business: Revenue of RMB 437 million, up 12% year-on-year, with a gross margin of 20.87%

Nearly all incremental growth came from lithium battery additives.

Fuxiang's lithium battery additive business focuses on two core products: VC (vinylene carbonate) and FEC (fluoroethylene carbonate). The company completed a VC capacity upgrade in June 2026, increasing annual capacity from 8,000 tons to 10,000 tons. FEC capacity stands at approximately 4,000 tons per year. In the first half of the year, electrolyte additive sales reached 5,904.89 tons, with a capacity utilization rate of 98.41%.

The company has established stable合作关系 with Tinci Materials and Capchem, and its VC products have passed BYD's certification and are being supplied to the company. Fuxiang has also entered the South Korean market after passing customer certification there.

Industry-Wide Price Recovery

Between 2023 and 2024, VC prices fell to RMB 45,000–50,000 per ton, causing industry-wide losses and forcing many small and medium-sized manufacturers to exit, completing a capacity shakeout. According to data, starting in Q4 2025, VC prices rebounded from a trough of RMB 110,000 per ton to RMB 220,000 per ton, with FEC prices recovering in tandem.

As of September 20, 2026:

• VC price: RMB 235,000 per ton
• FEC price: RMB 84,000 per ton

This industry-wide price recovery directly reversed losses in the new energy business. The core driver is the simultaneous increase in both volume and price.

Peer Companies Confirm the Trend

Huasheng Lithium (688353.SH):

• H1 2026 revenue: RMB 792 million, up 126.51% year-on-year
• Net profit attributable to shareholders: RMB 223 million, compared to a loss of approximately RMB 63 million in the same period last year
• Comprehensive gross margin surged from -2.07% to 52.55%
• VC product revenue: RMB 582 million, accounting for 73.39% of total revenue, with a gross margin of 65.62%

Estimates suggest Huasheng Lithium's full cost for VC is approximately RMB 55,000 per ton. At current selling prices above RMB 200,000 per ton, gross profit per ton exceeds RMB 140,000.

Yongtai Technology (002326.SZ):

• Expected H1 2026 net profit attributable to shareholders: RMB 265 million to RMB 330 million, up 350.68% to 461.22% year-on-year
• Reason cited: "Sales volume and prices of core lithium battery materials including lithium hexafluorophosphate, LiFSI, VC, and electrolytes all increased year-on-year"

Yongtai Technology originally had VC capacity of 10,000 tons per year. A new 5,000-ton production line, commissioned at the end of 2025, is steadily ramping up, further amplifying the volume-price synergy.

The Core Logic Behind VC Price Increases

Lithium battery electrolyte additives are one of the four key materials for lithium-ion batteries. VC and FEC are the most widely used film-forming additives, particularly indispensable in high-energy-density batteries such as high-nickel NCM and silicon-carbon anode batteries.

Demand-Side Drivers

According to Frost & Sullivan, the global lithium battery electrolyte additive market is expected to grow from 135,400 tons in 2025 to 391,500 tons by 2030, representing a compound annual growth rate of 23.66%.

Two demand-side variables are simultaneously driving growth:

1. New National Safety Standards for Power Batteries

A mandatory national standard implemented in July 2026 requires power batteries to not catch fire or explode within two hours of thermal runaway. The essence of thermal runaway is the rupture of the negative electrode, causing continuous decomposition and heat release from the electrolyte. Increasing VC content is the most direct way to strengthen the SEI (solid electrolyte interphase) film.

To meet these standards, battery manufacturers are forced to increase VC usage. Industry sources indicate that VC content in ternary batteries has increased by 0.5 to 1 percentage point, while in LFP (lithium iron phosphate) batteries, it has increased to more than three times previous levels.

2. Explosive Growth in Energy Storage Batteries

Energy storage batteries have significantly higher VC addition ratios than power batteries:

• Power batteries: No more than 3%
• Energy storage batteries: Generally above 3%, with some large-format cells exceeding 10% during secondary electrolyte injection

In July 2026, energy storage cell production accounted for 42.89% of total lithium battery production. According to a Haike Xinyuan announcement, China's VC demand in 2026 is expected to increase by 51% year-on-year to 93,200 tons.

Combined effect of both variables: Global VC demand in 2026 is projected to reach 98,000 to 120,000 tons, representing year-on-year growth of 47% to 60%, significantly outpacing the overall lithium battery industry growth rate of 31%.

Supply-Side Constraints

As of the end of 2026, China's nominal VC capacity stands at approximately 192,000 tons, but effective supply is only about 115,000 tons. The gap of 77,000 tons largely consists of newly built production lines still undergoing commissioning and ramp-up, or awaiting customer certification.

VC is a hazardous fine chemical product. The production process uses raw materials such as chlorine gas and triethylamine, which are flammable and toxic, subjecting it to stringent environmental approval requirements. The cycle from project approval to stable delivery typically ranges from 18 months to 3 years, and new production lines require approximately 3 months of ramp-up after commissioning.

Furthermore, VC production lines cannot operate at full capacity. Full production compresses the margin for process control, increasing the risk of equipment abnormalities or safety incidents. A safety margin must be maintained for operating rates.

Inventory Tightness

Inventory levels are also tight. Industry average operating rates were low in 2025, leading to continuous inventory depletion. Research data shows that VC industry inventory has fallen to less than five days, and electrolyte companies have raw material inventory sufficient for only one week of production. Spot market supply is constrained.

Major downstream customers are now securing supply through long-term contracts:

• CATL has bypassed electrolyte manufacturers to directly "lock in" orders with VC producers, signing a three-year VC supply agreement with Yongtai Technology for approximately 90,000 tons
• BYD has strategically invested in Huasheng Lithium's subsidiary Xianghe New Energy, acquiring a 15% stake

Outlook: Tight Supply Expected to Continue

The tight VC supply situation is expected to persist through 2026. According to a research report from CITIC Construction Investment Securities, new capacity additions are concentrated in Q4, so short-term supply will remain tight. Industry analysts believe VC supply tightness may continue until the first half of 2027.

2027 is a key observation window:

• Yongtai Technology plans to reach total VC capacity of 80,000 tons per year by end of 2027
• Huasheng Lithium is advancing a one-time overall investment in a 60,000-ton-per-year VC project
• Shandong Genyuan expects total capacity to reach 120,000 tons by end of 2026

If these capacities come online as scheduled, the supply landscape could shift from tight balance to oversupply. However, VC capacity additions have never been reliably "on schedule." Safety incidents, environmental reviews, and customer certification—any single issue can delay effective supply. The safety incidents at some VC factories in Shandong in 2025, which triggered industry-wide safety rectifications, serve as a precedent.

Fuxiang's Position and Risks

For Fuxiang, the current capacity utilization rate of 98.41% means there is almost no buffer to respond to demand fluctuations. In July 2026, the company announced a private placement plan to raise up to RMB 700 million, with RMB 374 million allocated to a 20,000-ton-per-year FEC project expected to commence production in October 2027.

High elasticity also means high volatility. Given the strong cyclical nature of the lithium battery additive industry, if industry capacity expands too rapidly in the future, the company's performance could again face pressure.

Pharmaceutical Manufacturing: Gradual Recovery

Fuxiang's pharmaceutical segment is its traditional core business. However, downstream demand contraction combined with price pressure has caused revenue in this segment to decline from RMB 1.43 billion in 2021 to RMB 814 million in 2025.

Key products such as sulbactam and tazobactam serve as raw materials for compound antibiotic preparations like piperacillin-tazobactam and cefoperazone-sulbactam. These preparations are key targets for volume-based procurement (VBP), and price reductions on finished drugs have been transmitted upstream to APIs and intermediates, continuously suppressing product prices.

The key intermediate 4-AA in the penem series remained at historically low prices between 2023 and 2025, compressing margins at every stage from raw materials to APIs.

Meanwhile, costs were under upward pressure. The core raw material for sulbactam and tazobactam, 6-APA, remained at elevated levels from 2022 to 2024, only falling to RMB 180 per kilogram in January 2026.

The gross margin for pharmaceutical manufacturing declined from approximately 30% in 2021 to 14.33% in 2024, before recovering slightly to 17.81% in 2025.

Additionally, the company recorded asset impairment losses for several consecutive years, further depressing current-period profits. It was not until the first half of 2026, with the decline in 6-APA prices, that the pharmaceutical manufacturing gross margin recovered to 20.87%. However, revenue grew only 12% year-on-year, indicating a slow recovery.

Microbial Protein: High Potential, Long Validation Timeline

Microbial protein represents Fuxiang's most visionary but also most time-intensive segment.

Globally, the alternative protein market continues to expand. Microbial protein, with advantages such as not requiring arable land, short production cycles, and low resource consumption, is considered one of the most promising directions.

Fuxiang's subsidiary, Weiran Protein, focuses on a Fusarium venenatum (Venafii Fusarium) strain. The technology has been certified by the China National Light Industry Council as reaching internationally advanced levels. In November 2025, Weiran Protein officially received approval from the National Health Commission as a new food ingredient, becoming China's first approved filamentous fungal protein. To date, Weiran Protein has gained market access in nearly 30 countries worldwide.

Fuxiang has built an annual production line with a capacity of 1,200 tons of Weiran protein, making it the first company in China to achieve thousand-ton-scale industrialization of filamentous fungal protein. The company has launched more than 20 end products, including protein burgers, protein konjac noodles, protein bars, and protein beverages.

A project for 20,000 tons of Weiran protein and 50,000 tons of amino acid water-soluble fertilizer per year is under development, with plans for completion and commissioning by the end of 2026.

However, microbial protein remains an emerging market that requires consumer education, and the revenue contribution from this business is currently very limited.

Conclusion

Fuxiang's 2026 story is one of a company that lost money for four consecutive years climbing out of the mud and finally seeing results. How far this growth trajectory can extend will depend on the cyclical fluctuations of the new energy industry, the pace of capacity expansion, and the commercial validation of its new businesses.