The high-end strategy is entering a harvest period, and the qualitative change in profits of TIANGONG INT'L (00826) accelerates its move towards a high-end materials platform.

If we say that TIANGONG INT'L (00826) is experiencing double-digit growth in profits for 2025 as the first performance inflection point after three years of phase adjustments, then the mid-term report for the first half of 2026 has substantively confirmed that TIANGONG INT'L has entered a new growth cycle. On August 28, TIANGONG INT'L released its financial report for the first half of 2026. The data showed that the companys revenue during the reporting period was 2.471 billion yuan, a year-on-year increase of 5.5%, and net profit attributable to shareholders was 226 million yuan, up 11.2% from the previous year. This is a bright performance marked by steady revenue growth and accelerated profit release, and the profit growth rate exceeding revenue growth by nearly 6 percentage points is attributable to the company's gross profit margin increasing from 18.9% to nearly 24.8% during the reporting period. It is worth noting that after excluding foreign exchange and option expenses and adjusting for the actual tax rate, the operational core net profit of TIANGONG INT'L during the reporting period was approximately 290 million yuan, a substantial increase of about 240% year-on-year, marking a significant improvement in the companys profit quality. This leap was not accidental but a necessary reward for TIANGONG INT'L's long-term adherence to a high-end strategywhere the proportion of high-value products in the revenue structure has continued to increase, driving the company to shift from selling scale to selling value. As the dividends of the high-end transformation become clearly reflected in the profit statement, TIANGONG INT'L is no longer just a leader in special steel but has transformed into a high-end materials platform company, with its true value likely to be re-evaluated in the capital market. High-speed steel and cutting tools serve as engines of growth, while keystone mold steel demonstrates stable performance. In the first half of 2026, the global macroeconomic development presented a complex picture of challenges and opportunities. On one hand, geopolitical competition and trade protectionism have intensified external uncertainties, compounded by rising oil prices and inflation expectations, adding to the operational pressures faced by enterprises. On the other hand, the explosive growth of cutting-edge tech industries like artificial intelligence provides core momentum for global industrial upgrades and investment demand. Particularly, in the domestic market, as new production capacity is fostered, the industrial structure is undergoing accelerated upgrades, allowing China's economy to demonstrate strong resilience in the opening year of the 15th Five-Year Plan, with a year-on-year GDP growth of 4.7% in the first half. Faced with these changes, TIANGONG INT'L, as a leading high-end materials manufacturer, seizes the opportunity of new industrialization and the development of strategic emerging industries, accelerating its high-end strategy during the reporting period to achieve rapid growth. From the revenue perspective, high-speed steel and cutting tools comprised the two core engines driving TIANGONG INT'Ls sustained growth during the reporting period. Both demonstrate the company's strong cost transmission ability and pricing power against the backdrop of soaring tungsten prices. During the reporting period, revenue from high-speed steel grew by 20.8% year-on-year to 476 million yuan, with its proportion of total revenue increasing from 16.8% to 19.3%. This growth was driven by a dual thrust from both domestic and overseas markets. Domestically, affected by an imbalance in tungsten supply and demand, the average price of tungsten surged nearly fivefold year-on-year, and the company, leveraging its industry position, successfully transmitted the cost pressure downstream, resulting in an average selling price increase of about 30% for domestic high-speed steel products, leading to a 6.2% increase in domestic revenue to 276 million yuan. In the overseas market, downstream demand gradually released, with a rising demand for high-end high-speed steel replacements, which boosted export sales by about 6%, along with an increase in average selling prices by approximately 40%. The combination of increased volume and price led to a remarkable 48.9% rise in high-speed steel export revenue to 201 million yuan. The performance of the cutting tools business during the reporting period was even more impressive, with revenue soaring by 42.3% to 565 million yuan, raising its proportion of total revenue from 17% to 22.9%. Notably, domestic sales revenue surged by 93.6% to about 309 million yuan, primarily driven by the dual impact of increased volume and price. On the pricing side, driven by the substantial increase in raw material tungsten prices, the average selling price of domestic cutting tool products rose by about 66%. On the sales side, due to tungsten raw material shortages in the overseas market leading to sharp price increases for imported carbide blanks and finished tools, domestic downstream companies' willingness to replace imports significantly increased, driving domestic sales up by 17%, leading to domestic revenue surging by 93.6% to 309 million yuan. The export market showcased characteristics of price compensating for volume: despite sales volume declining due to higher inflation and living costs affecting the North American market, export cutting tool revenue still achieved a 7.9% increase to 257 million yuan, thanks to an average price increase of approximately 25%. Mold steel, as a keystone of the company's revenue, continued to provide robust support during the reporting period. Revenue for this segment increased by 1.0% year-on-year to 1.166 billion yuan, optimizing its proportion of total revenue to 47.2%. In the domestic market, the company focuses on the high-end mold steel field; despite some adjustments in sales volume, the effective increase in product prices led to a 3.9% increase in domestic revenue to 588 million yuan, continuing the logic of compensating volume with price. Meanwhile, exports faced demand suppression in downstream markets due to high inflation, resulting in sales volume, average price, and total sales remaining stable compared to the same period last year, demonstrating operational resilience amid external headwinds. The titanium alloy business faced pressures during the reporting period, mainly due to adjustments in production planning for new consumer electronics products. This was merely a short-term disruption caused by cyclical fluctuations in certain downstream industries and not indicative of sustained challenges, as evident from the data. TGGF's revenue for the second quarter of 2026 was 126 million yuan, a quarter-on-quarter increase of 21.44%. There are clear signs of recovery, and a performance peak is expected in the second half of the year with the launch of a new generation of terminal products. The high-end strategy positions the company for industrial transformation and upgrading, with three core businesses accelerating value-driven growth. From the analysis of the performance mentioned above, it is clear that the steady revenue growth and accelerated profit release for TIANGONG INT'L in the first half of 2026 are concentrated manifestations of the companys strong pricing power under its high-end strategy. Whether it is the compensating for volume with price strategy in mold steel domestic sales, the cost transmission and price increases of high-speed steel both domestically and internationally, or the speeding up of domestic replacements in cutting tools, they all stem from the same underlying logicwhen downstream demand is under pressure, the company achieves high-quality growth by focusing on the high-end market and product structure upgrades; when raw material costs soar, the company has the ability to smoothly transmit cost pressures; when overseas competitors face supply limitations due to raw material shortages, the company seizes the opportunity for domestic replacement thanks to its integrated layout. These three main businesses, across three different scenarios, collectively confirm the most direct evidence of TIANGONG INT'L's shift from scale-driven to value-driven. From an industrial perspective, in June 2026, Chinas manufacturing PMI returned to the expansion zone at 50.3%, with high-tech manufacturing and equipment manufacturing PMIs reaching 53.5% and 52.5% respectively. The robust expansion in the high-end manufacturing sector has provided solid demand support to the upstream materials industry, and the three tracks of mold steel, cutting tools, and titanium alloy are accelerating into the fast lane of high-end upgrading. This qualitative change in the industrys transition from scale competition to value competition is a vivid reflection of China's manufacturing sector's transformation towards high-end development. In this irreversible industrial transformation, TIANGONG INT'L's forward-looking high-end strategy is in perfect resonance with the direction of industrial structure upgrading, achieving a precise strategic positioning. With years of accumulated technological barriers and product strength, the company is rapidly moving from the strategic layout investment phase to the phase of concentrated achievement realization, establishing a dual-driven growth pattern of core main business ballast + breakthroughs in emerging tracks. Specifically, in its core main business, TIANGONG INT'L has accelerated the continuous penetration of the high-end strategy, with high-value products achieving concentrated breakthroughs in commercialization. In the field of mold steel, the company is actively integrating with accelerated penetration trends in die-casting, deepening cooperation with major manufacturers and key suppliers, and successfully launching Chinas first TGE23 mold steel certified by North Americas NADCA, along with the award-winning TGE21 material. At the same time, the companys independently developed powder metallurgy hot work mold steel TPMDC02A has successfully surpassed 10,000 mold cycles at customer sites without surface cracking, significantly extending the lifespan of molds used in large die-casting for new energy vehicles compared to Swedish imported materials, thus accelerating the large-scale industrial landing of high-end new materials. Notably, TIANGONG INT'L is also integrating three key technologies: powder metallurgy, built-in water channels, near-net shaping, and achieving mass production of critical components such as shape-cooled molds, which increases cooling efficiency of large die-casting molds by over 30%, precisely solving the pain points of heat dissipation and mold lifespan. By June 2026, relevant core components had passed stringent production testing and were recognized by several leading terminal die-casting companies domestically, which is likely to solidify the companys leading position in the integrated die-casting supply chain. Additionally, the company is increasing its investment in the research and development of powder high-speed steel, perfecting its product portfolio, enhancing consistency and processing stability, and continuously consolidating its technological advantages in precision manufacturing. In the cutting tools sector, TIANGONG INT'L is accelerating its transition towards high-end and structured upgrades. The current demand for cutting tools is gradually shifting from generic, low-end consumables toward high-precision, high-efficiency, long-lasting products that can adapt to intelligent processing. Additionally, the performance, delivery efficiency, and cost-effectiveness of domestic cutting tools are continually improving in mid to high-end applications, and the process of high-end domestic replacement is steadily advancing. TIANGONG INT'Ls cutting tools business implements vertical integration, extending from upstream high-speed steel production to downstream cutting tools manufacturing. This gives the company a significant cost advantage over its peers, as it is the only domestic enterprise with a complete supply chain from high-end powder materials to powder tools, which will further elevate the value of its tool products. Moreover, substantial breakthroughs have been made in the domestic replacement of carbide tools. In the first half of the year, the products successfully entered the supply chain of the leading Siasun Robot&Automation within the Chinese Academy of Sciences, replacing imports in the processing of key components such as the Siasun Robot&Automation body and harmonic reducers, achieving bulk deliveries. Simultaneously, the companys cutting tools have penetrated the high-end precision tool track for PCBs, indicating its layout in emerging tracks. In the titanium alloy sector, TIANGONG INT'L is steadfastly upgrading towards high value-added, high-technical-threshold directions. On one hand, the company capitalizes on the trend of titanium alloying in consumer electronics, collaborating with leading enterprises such as Luxshare Precision Industry and Han's Laser Technology Industry Group to deeply embed itself in the supply chain, accelerating the industrialization of high-end titanium materials and precision tools, which is expected to continuously expand supply share with the terminal volumes increasing. On the other hand, the 3,000-ton annual high-end titanium powder project (phase 1: 1,000 tons) of its invested enterprise, Tiangong Titanium Crystal, has entered the equipment installation and debugging stage, with product indicators reaching industry-leading levels. Combined with existing R&D accumulation, the company has basically completed the full industrial layout from titanium material raw materialshigh-end titanium powder3D printed structural components, laying a solid foundation for optimizing profit structure and positioning itself in emerging tracks such as consumer electronics and aerospace. According to supply chain sources, leading enterprises in the consumer electronics sector have raised their production stocking targets for new products in 2026. As a core supplier of titanium materials in the high-end consumer electronics field, TIANGONG INT'L is poised to directly benefit from strong demand from terminal customers. Industry views suggest that the trough for TIANGONG INT'L's titanium alloy business has passed, with a possibility of returning to rapid growth in the second half of 2026. Strategically entering three emerging tracks, the company aims to tap new growth areas and open up long-term growth space. The accelerated penetration of the high-end strategy into core businesses is expected to drive continuous improvement in TIANGONG INT'Ls overall gross profit margin, thereby enhancing the company's profit quality. Building on this, TIANGONG INT'L is accelerating layouts around three emerging tracks: nuclear fusion materials, PCB tools, and Siasun Robot&Automation, aiming not only to tap into new market increments and open up future growth space but also to further elevate its overall profit center. In the field of nuclear fusion materials, driven by the demand for power supply raised by AI computing capabilities, the cost reduction of nuclear fusion devices by high-temperature superconducting technology, and the global low-carbon transition, the controllable nuclear fusion industry is accelerating its implementation, and upstream material companies are likely to experience significant order growth. During the review period, TIANGONG INT'L successfully developed the countrys first 304B7 powder metallurgy high-boron steel (2% boron content) industrially, exhibiting superior comprehensive strength and toughness over traditional casting processes. With its excellent neutron absorption and corrosion resistance, this material is expected to be used in nuclear fusion devices (shielding layers, vacuum chamber interlayers, filtration devices, etc.) as well as in nuclear fission fields (neutron absorption plates, control rod guide tubes, spent fuel transportation containers, etc.), marking a substantial step in the Group's research and development of key materials for nuclear fusion, with high-boron steel likely becoming a first-mover product. Moreover, the Group has completed processing tests for specific complex structural components demanded by the International Thermonuclear Experimental Reactor (ITER) research team and has sent samples to the ITER organization in France for verification. A good foundation for cooperation has been established, and deeper technical and business collaborations are expected in the future. In the PCB tool sector, TIANGONG INT'L is seizing the dividend from AI infrastructure investments, focusing on upstream high-toughness rods to support tool performance from the source, and building integrated production capacity combining ultrafine-grained bars + high-end precision tools + drilling processing, accelerating entry into the AI server and high-level electronic PCB supply chain, aiming to achieve annual capacities of 300 million PCB drill needles and 100 million end mills, thereby opening a new revenue curve facing AI infrastructure. In the Siasun Robot&Automation arena, the company adopts a dual-track strategy of deep cultivation of applications and forward-looking strategic investment, achieving multidimensional breakthroughs in body manufacturing, joint driving, and core component materials. On the application side, hard alloy tools have made breakthroughs against trends, with multiple product types entering the Siasun Robot&Automation supply chain and achieving import substitution and bulk deliveries in the processing of key components such as Siasun Robot&Automation body structure parts, precise harmonic reducers, and servo motor housings. On the investment side, in July, TGGF participated in the Fosun Chuangfu Venture Capital Fund, leveraging professional institutional resources to tap the growth value of core Siasun Robot&Automation components, while exploring synergies between titanium alloy materials and high-end applications in Siasun Robot&Automation. From a technology reserve perspective, the independently developed high-nitrogen alloy TPMDC02A has broken foreign barriers and possesses ultra-high strength and excellent fatigue resistance, highly meeting the stringent requirements of core drive components like humanoid Siasun Robot&Automation planetary roller screws. The market expects that the large-scale commercialization of this product may gradually emerge by 2027, which would help the company seize the opportunity of domestic substitution for high-end alloy materials and will be advantageous for optimizing product structure and enhancing overall gross profit margin in the long run. In conclusion: What the market should pay attention to in this interim performance from TIANGONG INT'L is not merely a few isolated growth figures, but rather the significant impact of the company's high-end strategy on profitability has been clearly evidenced in the financial report. The company is currently accelerating the implementation of its high-end strategy within its core businesses, experiencing concentrated commercial volume increases in high-value products. Coupled with TIANGONG INT'Ls proactive layout around three high-value emerging tracks: nuclear fusion materials, PCB tools, and Siasun Robot&Automation, it has entered a new growth phase driven by high-end development. This signifies that as the industry transitions from competing in scale to competing in value, TIANGONG INT'L, with its strategic positioning advantage, will become a core beneficiary of the reshaping of competitive rules. This resonance of industry trends + strategic positioning + performance realization is driving the company towards a critical turning point from underestimated to revalued, allowing its true value to gradually gain consensus in the capital market. CICC previously released a research report indicating that the upstream rod materials for PCB precision tools are dominated by Japan's Sumitomo, while the PCB tools market is led by Japan's Yuno and Kyocera, with a low domestic substitution rate. TIANGONG INT'Ls strategy is to extend from upstream carbide rod materials to downstream products through its alloy smelting capabilities, establishing its own production line for ultrafine rods for PCB drill needles, forming an integrated layout of alloy rods finished tools, making it more competitive in terms of delivery, cost, and customization response compared to tool manufacturers that solely purchase rods externally. Based on this, CICC has raised its 2027 net profit estimate for TIANGONG INT'L to grow by 12.4% to 1 billion yuan, projecting the stock price to reach 5.29 HKD, representing over 70% upside potential from the closing price of 3.045 HKD on August 28. Additionally, Guotai Haitong is optimistic about TIANGONG INT'Ls entry into the high-boom material segment in AI, giving it an overweight rating with a target price of 5.2 HKD.