The slowdown in demand growth for sun protection products suggests difficult times may persist for a while longer.
In the chemical industry, serving international giants has long been considered a lucrative business. As long as the downstream clients prospered, Nanjing Cosmos Chemical (300856.SZ), acting as a key upstream supplier, could enjoy a comfortable existence. However, the recent financial report has doused the market with cold water: clients are tightening their belts amid economic headwinds and digesting existing inventory, making it clear that Nanjing Cosmos Chemical's once-reliable "bowl of soup" is becoming increasingly unstable.
The company's performance has taken a dramatic "deep squat," moving from a period of peak performance to its darkest hour. On January 21st, the company issued a staggering profit warning, forecasting its full-year 2025 net profit attributable to shareholders to be only 90 to 120 million yuan. This figure represents a precipitous decline of 78.7% to 84.0% compared to 2024 levels.
Reviewing the latest financial statements reveals the severity of the situation. For the first three quarters of 2025, the company managed to achieve revenue of 1.12 billion yuan, but this figure masks a decline in sales volume and, more critically, a cliff-like drop in profitability.
Nanjing Cosmos Chemical was once famously known as a "cash cow." In 2023, its comprehensive gross profit margin stood impressively high at 48.8%, indicative of a highly profitable business. Although it dipped slightly to 44.4% in 2024, it remained enviable. However, by the third quarter of 2025, this margin had plummeted through the 30% psychological barrier to just 29.6%. In less than two years, nearly 20 percentage points of gross margin had evaporated.
According to the latest quarterly report, the net cash flow from operating activities for the first nine months of 2025 was a mere 160 million yuan, a decrease of nearly 79% year-on-year. The reality for Nanjing Cosmos Chemical is stark: cash inflow is weak, and products are moving slowly.
The core business logic of Nanjing Cosmos Chemical is straightforward: it specializes in being a high-end "premier supplier." Its client roster is impressive, featuring heavyweight international personal care giants like DSM, Beiersdorf, Procter & Gamble, and L'Oréal. Even in the synthetic fragrance sector, industry leaders such as Givaudan and Firmenich are among its key customers.
The advantages of this model are clear: a direct sales approach eliminates the massive costs associated with building distribution channels and brand marketing. It avoids fierce competition in the consumer market, allowing it to focus solely on the supply chain. Benefiting from the industry's characteristic "high margin, high marketing spend" structure, the cost of raw materials from suppliers like Cosmos was historically a minor factor for downstream players, akin to sesame seeds on a pancake. In previous years, fueled by global growth in sunscreen agent consumption and the红利 of supply chain migration to China, Nanjing Cosmos Chemical indeed "won big." It once commanded over 20% of the global sunscreen agent market, a clear leader in its niche.
However, the inherent vulnerability of this "parasitic" model was fully exposed in 2025. Over 80% of the company's revenue comes from overseas. When its major international clients began "de-stocking" and demand growth slowed, Nanjing Cosmos Chemical immediately felt the chill. Once downstream demand for raw materials weakens, or clients start squeezing margins to protect their own profits, the upstream supplier's bargaining power evaporates instantly.
Data shows that the gross margin for its core profit engine—cosmetic active ingredients, primarily sunscreen agents—plummeted from 53.1% in 2023 to 35.3% in the first half of 2025, a staggering decline.
Within the A-share chemical sector, there are actually very few companies that serve as true peers to Nanjing Cosmos Chemical. Tinci Materials also deals in personal care materials, but its focus is 90% on lithium battery materials, making it a different play. Zanyu Technology primarily engages in oleochemicals, with gross margins often lingering in the single digits, representing a low-margin business. Yangfan New Material specializes in photoinitiators, while Apple Flavor & Fragrance focuses on food flavors, both having low business overlap. The only somewhat similar company, Asia Aroma Corp, is also in the fragrance business but operates on a significantly smaller scale than Cosmos.
Consequently, for a long time, Nanjing Cosmos Chemical grew rapidly in a relatively "competition-free vacuum." It boasts 162 patents and holds certifications from the FDA and the EU, suggesting a deep moat. Yet, its challenge came not from direct competitors, but from the industry cycle. When supply-demand dynamics reversed, the former "moat" could not withstand the flood of price competition. In 2025, sunscreen product prices generally fell, shattering the myth of perpetually high margins and proving that no one remains a winner forever in the face of cyclical downturns.
Amid this performance winter, the actions of the company's controlling shareholder are particularly noteworthy. According to announcements, one of the actual controllers, Mr. Zhou Jiujing, sold 9.45 million shares, representing 1.99% of the total share capital, through block trades between August 7th and November 2025. The average selling price was 11.26 yuan per share. Although this price was roughly half the highs of 20-30 yuan seen in 2023, given the company's full-year 2025 net profit expectation of less than 120 million yuan, this cash-out of over 100 million yuan appears, in retrospect, to have been a signal even at that time.
While the major shareholder was selling, the company's expansion plans continued unabated. The latest financial reports indicate that projects in Malaysia and Anqing are still progressing. The project in Malaysia, aiming for an annual production capacity of 10,000 tons of sunscreen series products, particularly demonstrates the company's ambition to continue grabbing global market share.
Furthermore, the company is actively promoting an equity incentive plan. Although the performance targets set are not low, achieving a turnaround from the current depressed earnings base will require significant effort. For Nanjing Cosmos Chemical, the current scenario involves expanding capacity amidst falling prices and ongoing inventory clearance. This is both a "scale and positioning battle" against potential newcomers and a severe test of its own cash flow resilience. Being an upstream supplier to giants is never easy. It seems that only when the warehouses of these overseas behemoths are empty and they resume substantial ordering will Nanjing Cosmos Chemical's "golden rice bowl" potentially regain its luster. But until that day comes, this period of hardship is likely to continue for a while longer.
