On the evening of October 18, 2021, Lianchuang Co., Ltd. released its performance report for the third quarter of 2021. The company achieved operating income of 1,235 million yuan from the beginning of the year to the end of the reporting period, a decrease of 9.85% over the previous year; net profit attributable to shareholders of listed companies was 163 million yuan, an increase of 658.29% over the previous year. Non-net profit attributable to shareholders of listed companies was reduced to 149 million yuan, an increase of 296.86% over the previous year.

Key points of investment:

The double increase in revenue and profit in the fluorine-containing new materials sector is basically in line with expectations: on a quarterly basis, the company achieved operating income of 504 million yuan in the third quarter, an increase of 18.84% over the previous year, an increase of 26% over the previous year; net profit after deducting non-return to the mother was 116 million yuan, an increase of 1141.59% over the previous year and an increase of 452.38% over the previous month. The year-on-year decline in the company's year-to-date performance was mainly due to the divestment of the Internet sector business. Quarterly results and year-to-date overall profitability growth improved markedly, mainly because the fluorine-containing new materials sector was boosted by increased demand for R142b and wide price increases, and sector revenue and profitability improved markedly. During the reporting period, the fluorine-containing new materials sector achieved operating income of 581 million yuan, an increase of 71.1% over the previous year, and achieved net profit of 222 million yuan, an increase of 1096.02% over the previous year. Among them, the revenue of the new fluorinated materials sector reached 294 million yuan in the third quarter alone, exceeding the total revenue level of the sector in the first half of the year. The performance of the sector during the reporting period and the third quarter was basically in line with expectations.

Factors such as declining performance of new polyurethane materials and large losses in the Internet sector lowered the company's overall performance: Taken together, the company's performance for the first three quarters, that is, the net profit level, was slightly lower than our previous expectations. There were four main factors: 1. The profitability of the new polyurethane materials sector clearly weakened. Net profit for the first three quarters was only 4.1308 million yuan, a decrease of 70.36% over the previous year; 2. The Internet sector, which had already been divested by the company, caused a large loss of more than 20 million yuan reported during the reporting period. Net loss of the Internet sector during the period 1722.23 10,000 yuan; 3. The company added about 21 million yuan in R&D expenses in the third quarter, an increase of nearly 110% over the previous quarter; 4. Since the beginning of the year, the company has been affected by factors such as divestment of the Internet sector, accounting for credit impairment losses, asset impairment losses, and asset disposal losses totaling about 19 million yuan, of which the total increase in losses in the third quarter was about 4 million yuan.

Prices of R142b and PVDF remain high, the shareholding ratio of Huaan New Materials has increased, and the fourth quarter results are expected to reach the next level: According to data from Baichuan Yingfu, as of October 18, the market price of R142b had reached 16-175,000 yuan/ton, with an average increase of more than seven times since the beginning of the year. The prices of PVDF powder (paint) and pellets have also risen to the range of 32-350,000 yuan/ton, with an average increase of more than three times since the beginning of the year. Based on the dual benefits of demand side emissions and supply-side tightness, this price level still has strong support in the short term. Furthermore, at the end of the reporting period, the proportion of shares held by the company in Huaan New Materials, a subsidiary that mainly engages in the fluorine-containing new materials business, increased from 86.59% to 90%. Therefore, we expect that as the first phase of PVDF production capacity is put into operation one after another, R142b continues to operate at a high level, and the contribution rate of Huaan New Materials to the company's performance increases, the revenue and profit level of the company's new fluorinated materials sector is expected to increase significantly month-on-month again in the fourth quarter, which in turn boosts the company's overall performance.

Profit forecast and investment suggestions: Considering the large losses that occurred during the reporting period of the Internet subsidiary, and that the company's first phase of PVDF began trial production at the end of August, 1000 tons of qualified products may not be as fully produced and sold as we had anticipated before the end of the year. Therefore, we have slightly adjusted the company's profit forecast for the whole year. We expect the company's revenue for 2021-2023 to be 20.98/39.74/5.205 billion yuan respectively, and Guimu's net profit is 4.8/1,60/1.65 billion yuan respectively, and EPS is 0.42/1.38/, respectively. 1.43. The corresponding P/E is 46.3/13.9/13.5 (corresponding to the closing price of 19.26 yuan on October 18), respectively. We are still optimistic about the future performance of the new fluorinated materials sector, so we maintain the “buy” rating.

Risk factors: the risk of product commencement being restricted due to environmental protection policies; the risk that the construction progress of PVDF and other projects falls short of expectations; the risk of large fluctuations in product prices; the risk that the operating benefits generated after subsequent construction and use of production expansion projects fall short of expectations; the company has recently received many letters of concern requesting additional information disclosure materials.