Anti-AIDS drugs are used in COVID-19 clinical research, and the company is the leading supplier of raw materials. Currently, the novel coronavirus epidemic continues to spread. The Shanghai Pharmaceutical Research Institute of the Chinese Academy of Sciences and the Shanghai University of Science and Technology have discovered 30 drugs that may be effective against the coronavirus, including anti-AIDS drugs.

The Shenzhen Health Commission has now initiated clinical research on anti-AIDS drugs for the treatment of COVID-19. Both coronavirus and HIV are RNA viruses. Drugs that treat AIDS also have a certain therapeutic effect on the coronavirus. Relevant drugs to treat HIV have a certain curative effect on patients with COVID-19 in the early stages. The main raw material for anti-AIDS drugs is high-purity PTSC, which is a sulfonated pharmaceutical intermediate. As a sulfonated pharmaceutical leader, the company has a monopoly position in the world and is the most important PTSC supplier. In addition, the company produces sodium hypochlorite products. Sodium hypochlorite is used to prepare 84 disinfectant, which is one of the most scarce materials for epidemic prevention nowadays. As a chemical leader, the company helps prevent and control the epidemic by supplying raw materials.

The layout of the hydrogen energy industry has been gradually improved, and the direction of the liquid hydrogen industry has been proposed first. The company's chlor-alkali plant resumed production of hydrogen, which has the advantage of being a hydrogen source. The purification cost of hydrogen gas, a by-product of chlor-alkali, is low and suitable for the development of hydrogen energy. The company is leading the way in hydrogen energy and cooperates with many parties in the industry. In the first half of the year, the company set up a joint venture with Furui Hydrogen Energy and Shanghai Reshaping to carry out the construction and operation of hydrogen refueling stations. Currently, the company plans to build 3 hydrogen refueling stations in Zhangjiagang and Changshu, deploying important links in the industrial chain such as hydrogen production, hydrogen storage, and hydrogen refueling. The planned fueling capacity of the hydrogen fueling station under construction is 1,000 kg/day per station, which can be further increased as the hydrogen energy industry develops. The company cooperated with Zhejiang Energy Group to build the country's first hydrogen liquefaction plant. Currently, hydrogen in the Yangtze River Delta region is mainly transported through gas cylinders. The cost is high. Liquid hydrogen has a cost advantage in long-distance transportation and a larger transportation radius, which is the direction of future industrial development.

Hydrogen energy is still in the policy development period. The foreign hydrogen supply price for hydrogen fueling stations around Shanghai is around 60 yuan/kg, local subsidies are around 20 yuan/kg, and the price of hydrogen refueling for end users is around 40 yuan/kg. The hydrogen energy industry is on the eve of an explosion. The company has a complete layout in the hydrogen energy field, has outstanding hydrogen source advantages, and is leading in liquid hydrogen technology. The future will directly benefit from the long-term development of the hydrogen energy industry.

Shareholders will be rewarded with a high percentage of dividends over the next three years. Since the company went public backstage in 2014, its performance has continued to grow steadily. The compound growth rate of net profit of the mother has reached 17.4%, and the return on net assets (weighted) has remained above 16%. From 2015-2018, the company's cash dividend ratio remained above 30%. Recently, the company released a shareholder return plan for 2020-2022. Under the condition that cash dividends are met, the company's annual cash dividend ratio is not less than 40% of the profits that can be distributed for that year. Relying on the circular economy, the company makes full use of the industrial support advantages of its chemical park to carry out low-cost investments and industrial chain extensions. On the one hand, investment risks can be reduced, and on the other hand, better economic benefits can be obtained. In the future, an advantageous industrial module featuring new chemical materials represented by sulfonated pharmaceuticals and new energy represented by hydrogen energy will be formed, creating a new Jihua with the ability to continue to grow steadily, while continuing to focus on high dividends and continuous returns to investors.

Profit forecasts and investment ratings: We believe that 1) as a leader in sulfonated pharmaceuticals, downstream demand is strong, and downstream anti-AIDS drugs are expected to be used to treat the novel coronavirus to help prevent and control the epidemic; 2) the company uses the advantages of hydrogen sources and cooperates with various industry parties to strongly lay out the upstream fuel cell industry chain, with a complete layout of hydrogen, liquid hydrogen and hydrogen refueling stations, benefiting from the long-term development of the hydrogen energy industry; 3) The company's cash dividend ratio will exceed 40% in the next three years, continuing to return to shareholders. The company's net profit for 2019-2021 is estimated to be 1,299/1,49/19.01 billion yuan respectively, and the corresponding PE is 11.0/9.6/7.5 times respectively, maintaining the “buy” rating.

Risk warning: The application of anti-AIDS drugs in the prevention and treatment of COVID-19 falls short of expectations; the development of the hydrogen energy industry falls short of expectations; the risk of a sharp drop in chemical product prices; systemic risks in the general market.