After enduring a roller-coaster ride in its share price, Dongyue Group (00189) appears to be catching a glimmer of hope for stabilization and a bottoming-out. 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 daily turnover of HK$240 million, representing a notable increase in trading volume compared to earlier periods.

On the news front, Dongyue Group disclosed on the evening of October 8 that its non-wholly-owned subsidiary Dongyue Silicon Materials issued a profit forecast for the first three quarters of 2026, expecting net profit attributable to shareholders of the listed company to range between RMB 547 million and RMB 567 million, compared to net profit of RMB 2.8567 million in the same period last year, representing a year-on-year increase of over 190 times. Stimulated by this news, Dongyue Silicon Materials opened higher and surged on October 9, hitting the daily limit-up shortly after the open. This likely provided a spillover effect that lifted Dongyue Group's share price as well.

It is worth noting that, over a longer time frame, Dongyue Group's share price trajectory this year has been highly volatile. After starting from a low point at the beginning of the year, the stock, driven by multiple catalysts including the upcycle in refrigerants, the implementation of quota policies, and elevated overall market risk appetite, briefly touched a high of HK$23.74 in late June, with a maximum gain of over 130% during that period. However, the share price then reversed course, falling over 40% in July alone, and has since accumulated a drawdown of more than 50%, nearly erasing all of this year's gains.

Fast forward to October, after the previous sharp decline, has Dongyue Group's share price fully digested pessimistic expectations? Looking ahead, could the subsidiary's earnings blowout help reverse Dongyue Group's stock price weakness?

Subsidiary's Profit Jump of Over 190 Times Heats Up Investor Sentiment

The direct catalyst for Dongyue Group's recent share price movement came from the profit forecast of its subsidiary Dongyue Silicon Materials. According to the announcement, Dongyue Silicon Materials's net profit attributable to shareholders for the first three quarters of 2026 increased by over 190 times year-on-year, a qualitative transformation compared to last year's performance hovering near the break-even line. In terms of the relationship between the two, Dongyue Silicon Materials is the core operating entity of Dongyue Group's organosilicon segment, so the implications of this high-quality earnings result for Dongyue Group's overall performance are self-evident.

Reviewing Dongyue Group's interim report, the organosilicon 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 organosilicon industry. At present, 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 technical picture, Dongyue Group's share price had been consolidating around HK$11 for several days before the volume-backed bullish candle on October 9, which may represent an attempt by funds to build a short-term bottom. However, it must be acknowledged that Dongyue Group's share price remains suppressed by the 5-day, 10-day, and 20-day moving averages, and the moving average system has yet to form a bullish alignment, so a trend reversal still requires more confirmation signals. Nevertheless, considering that Dongyue Group's share price has already retreated over 50% from its high, nearly erasing all of this year's gains, pessimistic expectations have at least been partially priced in. From a technical perspective, absent further negative news, the likelihood of further downside in the share price may be relatively low.

When Will Value Reassessment Arrive Under Multiple Catalysts?

Dongyue Silicon Materials's positive profit alert provided a direct catalyst for Dongyue Group's rebound on October 9. However, by stepping back from the subsidiary's earnings jump and re-examining the industry cycle and valuation coordinates in which Dongyue Group operates, one may gain a clearer understanding of the changes this fluorine-silicon leader is undergoing.

Refrigerants remain the key clue to grasping its fundamental changes. Since the third quarter, mainstream refrigerant prices have been stable to higher overall, with fourth-quarter long-term contract prices rising by a further RMB 500 per tonne. 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 underutilized quotas previously caused by equipment adaptation periods is expected to gradually ease, and the earnings stability of the refrigerant segment continues to strengthen.

In the fluoropolymer segment, market news suggests that Nvidia's next-generation Rubin Ultra platform is evaluating the introduction of PTFE materials in switch board cards. Due to its 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 companies. Dongyue Group has previously made clear it will redirect unused raised funds toward a PTFE ultra-high-purity quality improvement project. If it can secure a substantial share in the AI computing hardware material upgrade, its contribution to the group's overall valuation could be considerable.

Additionally, it is worth noting 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. The company is mainly engaged in the research, development, and sales of high-performance fluorine-containing functional membranes and key materials, forming synergies with Dongyue Group in the fluorine-containing industry chain. If it successfully lists, the asset value of the Dongyue system in the fluorine-containing new materials sector could be re-evaluated.

Back 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 for the company has its rationale, as chemical price volatility, management complexity from 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, organosilicon has completed its bottom recovery, and fluoropolymers hold realization potential. If the market still prices Dongyue Group within a strong cyclical chemical stock framework, there may be an expectation gap.

In summary, Dongyue Silicon Materials's substantial positive profit alert provides strong evidence of earnings improvement in Dongyue Group's organosilicon segment and has somewhat alleviated the market's pessimistic expectations about the company's fundamentals. However, a single day of volume-backed rebound is not sufficient to confirm a trend reversal, and it remains necessary to observe whether Dongyue Group's trading volume can continue to expand and whether the share price can effectively hold above short-term moving averages. Overall, however, with negative factors potentially already fully priced in, investors may at this stage afford to hold a more optimistic expectation for Dongyue Group's future performance.