Subsidiary's profit forecast surges 190-fold, heating up investment sentimenthas DONGYUE GROUP (00189) finally reached a turning point?

Title context: Subsidiary's profit forecast surges 190-fold, heating up investment sentimenthas DONGYUE GROUP (00189) finally reached a turning point? Text: DONGYUE GROUP (00189), whose stock price has experienced a roller-coaster ride, seems to see a glimmer of hope for stabilization and bottoming out. GMTEight noticed that on October 9, DONGYUE GROUP broke away from its recent sluggish performance, trending upward throughout the day, touching an intraday high of HK$11.1 and closing at HK$10.99, up 3.29%, with a final daily turnover of HK$240 million, showing increased volume compared to earlier periods. On the news front, DONGYUE GROUP disclosed on the evening of October 8 that its non-wholly-owned subsidiary Shandong Dongyue Silicone Material released its earnings forecast for the first three quarters of 2026. Shandong Dongyue Silicone Material expects to achieve a net profit attributable to shareholders of the listed company of RMB 547 million to RMB 567 million for the first three quarters, compared to a net profit of RMB 2.8567 million in the same period last year, representing a year-on-year increase of over 190-fold. Stimulated by the above news, Shandong Dongyue Silicone Material's stock price opened high and went higher on the 9th, hitting the daily limit-up shortly after the open. Possibly driven by this, DONGYUE GROUP's stock price also followed suit. It is worth noting that, looking at a longer time frame, DONGYUE GROUP's stock price trajectory this year has been quite turbulent. After starting from a low point at the beginning of the year, the stock, under multiple catalysts including the upward cycle of refrigerants, the implementation of quota policies, and relatively high overall market risk appetite, once touched a high of HK$23.74 in late June, with a maximum gain of over 1.3 times during that period. However, the stock price then turned downward, falling over 40% in July alone, and has since accumulated a retracement of over 50%, almost erasing all of this year's gains. Fast forward to October, after the previous sharp decline, has DONGYUE GROUP's stock price fully digested pessimistic expectations? Looking ahead, will the subsidiary's earnings significantly beating expectations help reverse DONGYUE GROUP's stock price downturn? Subsidiary's profit forecast up over 190-fold heats up investment sentiment? DONGYUE GROUP's recent stock price movement was directly catalyzed by the earnings forecast from its subsidiary Shandong Dongyue Silicone Material. According to the announcement, Shandong Dongyue Silicone Material's net profit attributable to shareholders for the first three quarters of 2026 increased by over 190-fold year-on-year, a qualitative transformation compared to last year's performance hovering near the break-even line. In terms of their relationship, Shandong Dongyue Silicone Material is the core operating entity of DONGYUE GROUP's silicone segment, so the guiding significance of this high-quality earnings performance for DONGYUE GROUP's overall results is self-evident. Reviewing DONGYUE GROUP's semi-annual report, the silicone business generated revenue of RMB 2.613 billion in the first half, up 12.7% year-on-year; segment profit was RMB 236 million, a significant improvement from RMB 8.75 million in the same period last year, with the segment net profit margin recovering from 0.38% to 9.02%. This Q3 forecast further confirms the sustainability of the supply-demand improvement in the silicone industry. At this stage, short-term new capacity additions across the market are limited, downstream demand is growing steadily, DMC prices have rebounded from the bottom, and the industry is undergoing a cyclical recovery driven by supply contraction. Returning to the trading front, DONGYUE GROUP's stock price had previously been consolidating around HK$11 for multiple days, and the volume-backed positive close on the 9th may be an attempt by funds to build a short-term bottom. However, it must be said that DONGYUE GROUP's stock price is still constrained by the 5-day, 10-day, and 20-day moving averages, and the moving average system has not yet formed a bullish alignment, so a trend reversal still requires more signals for confirmation. Nevertheless, considering that DONGYUE GROUP's stock price has already retraced over 50% from its high, almost erasing all of this year's gains, pessimistic expectations have at least been partially digested. Therefore, from a technical perspective, in the absence of further negative news, the possibility of the company's stock price declining further may be relatively low. When will value revaluation come under multiple catalysts? Shandong Dongyue Silicone Material's positive earnings forecast provided a direct catalyst for DONGYUE GROUP's rebound on the 9th. But if we shift our gaze away from the subsidiary's profit surge and re-examine the industry cycle and valuation coordinates in which DONGYUE GROUP operates, we may gain a clearer understanding of the changes this fluorine-silicon leader is undergoing. Refrigerants remain a key clue to grasping its fundamental changes. Since Q3, mainstream refrigerant prices have generally been stable to upward, with Q4 long-term contract prices rising by a further RMB 500/ton. As for DONGYUE GROUP, its base under the quota system remains solid, holding the largest domestic R22 quota and a leading R32 quota. With the R32 project reaching full production, the issue of insufficient quota utilization previously caused by the facility adaptation period is expected to gradually ease, and the earnings stability of the refrigerant segment continues to strengthen. In the fluoropolymer segment, market news indicates that Nvidia's next-generation Rubin Ultra platform is evaluating the introduction of PTFE materials in switch boards. With extremely low dielectric loss, this material is regarded as a key candidate for core resin in M10-grade high-frequency PCBs. Currently, the domestic localization rate of high-end electronic-grade modified PTFE is less than 5%, with the core market long dominated by overseas enterprises. DONGYUE GROUP has previously made clear it will change the use of unused raised funds for the PTFE ultra-high-purity quality improvement project. If it can secure a substantive share in the material upgrade for AI computing hardware, its contribution to the group's overall valuation could also be quite considerable. Additionally, it is worth mentioning that Shandong Dongyue Future Hydrogen Energy Materials Co., Ltd., under DONGYUE GROUP's actual controller, has submitted for coaching registration, marking the company's fourth attempt at an IPO. According to reports, the company is mainly engaged in the R&D and sales of high-performance fluorine-containing functional membranes and key materials, forming synergies with DONGYUE GROUP in the fluorine-containing industry chain. If successfully listed, the asset value of the Dongyue group in the fluorine-containing new materials sector could be re-evaluated. Returning to valuation, DONGYUE GROUP's current dynamic price-to-earnings ratio is around 8 times, at a historically low level. The market's low valuation of the company certainly has its rationale, as chemical price volatility, management complexity brought by business diversification, and the Hong Kong stock liquidity discount are all objective suppressing factors. However, at the current juncture, refrigerant earnings stability continues to strengthen under the quota system, silicone has completed its bottoming-out and recovery, and fluoropolymers have realization potential. If the market still prices DONGYUE GROUP within the framework of a strongly cyclical chemical stock, there may be an expectation gap. Overall, Shandong Dongyue Silicone Material's significantly positive earnings forecast provides strong evidence for the earnings improvement in DONGYUE GROUP's silicone segment and has to some extent alleviated the market's pessimistic expectations about the company's fundamentals. However, a single-day volume-backed rebound is not sufficient to confirm a trend reversal. Going forward, it remains necessary to observe whether DONGYUE GROUP's trading volume can continue to expand and whether the stock price can effectively hold above short-term moving averages. That said, at a time when negative factors may have been fully priced in, the author believes investors may now be able to hold more optimistic expectations for DONGYUE GROUP's outlook.