Investment Rating - The industry investment rating is "Positive" and maintained [8] Core Insights - In the previous two cyclical bull markets, alpha leading stocks significantly outperformed the basic chemical sector. These leaders possess both supply-demand improvements and cost advantages, leading to price elasticity and sustainable low-cost expansion. In cyclical bull markets, they exhibit performance drivers of volume and price increases, providing excess returns for investors [2][6][38]. - The report emphasizes the importance of investing in high-quality leading companies such as Wanhua Chemical, Hualu Hengsheng, Longbai Group, Yangnong Chemical, Huafeng Chemical, and Boyuan Chemical [2][6][38]. Summary by Sections Introduction: Why Focus on Leading Stocks in Cyclical Bull Markets? - The PPI (Producer Price Index) has shown a continuous narrowing of decline and is expected to turn positive by October 2025. This indicates a potential recovery in industrial product pricing and an improvement in market demand and supply conditions. The chemical industry, as a key industrial raw material, is likely to reflect these changes first, suggesting a transition from demand stagnation to a new round of inventory replenishment or capacity adjustment [4][14]. Performance of Alpha Leaders in Previous Cyclical Bull Markets - The report analyzes the stock selection and performance of alpha leaders during the last two cyclical bull markets (2016-2018 and 2020-2021). The selected stocks include Wanhua Chemical, Hualu Hengsheng, Longbai Group, and Yangnong Chemical, with the addition of Huafeng Chemical and Boyuan Chemical in the second round. The performance data shows that these leaders significantly outperformed the basic chemical index [5][18]. - In the first cycle (2016-2018), the highest stock price increases for these leaders were 488.9% for Wanhua Chemical, 281.4% for Hualu Hengsheng, 147.7% for Longbai Group, and 247.5% for Yangnong Chemical, with an average increase of 291.4%. The basic chemical index saw a maximum increase of around 39% during the same period [18][19]. - In the second cycle (2020-2021), the highest increases were 311.0% for Wanhua Chemical, 276.5% for Hualu Hengsheng, 314.2% for Longbai Group, 188.0% for Yangnong Chemical, 290.1% for Huafeng Chemical, and 728.7% for Boyuan Chemical, with an average increase of 351.4% compared to a maximum of 136% for the basic chemical index [18][19]. Investment Recommendations - The report suggests focusing on high-quality leading companies for investment opportunities, as they are expected to benefit from supply-demand improvements and cost advantages. The overall chemical sector is currently at a low point, but with anticipated global economic growth, demand for chemical products is expected to increase. The report also highlights the potential for a recovery in PPI and chemical prices in 2026 [6][38][39].

Core Viewpoint - In October, the national Producer Price Index (PPI) increased by 0.1% month-on-month, marking the first month of positive growth in PPI this year. This signals a potential upward trend for the chemical sector, which has been consolidating for a long time, suggesting significant upside potential as industrial prices are expected to rise with further PPI recovery [5]. Group 1: PPI and Chemical Sector Outlook - The chemical sector has experienced a long bottoming process, and the recent PPI increase indicates a broad upward potential for the industry [5]. - With the recovery of PPI, industrial product prices are anticipated to rise, enhancing the investment value in the chemical sector [5]. Group 2: Policy Support and Market Conditions - Recent high-level discussions on "anti-involution" aim to promote the exit of outdated production capacity, which, combined with domestic demand recovery and export support from Asia, Africa, and Latin America, may lead to a recovery in the chemical industry [6]. Group 3: Valuation and Investment Opportunities - As of October 2025, the sub-sector chemical index has retraced over 44% since its peak in September 2021, with the current price-to-book ratio at 2.28 times, indicating a significant margin of safety for the sector [7]. - The sub-sector chemical index has shown a historical performance with returns of 51.68% in 2020, 15.72% in 2021, -26.89% in 2022, -23.17% in 2023, and -3.83% in 2024, reflecting the volatility and potential for recovery [9].