It was greatly affected by the epidemic, and the interim results were under pressure: the company's revenue for the first half of 2020 fell 23.3% year-on-year to 4.636 billion yuan. The consolidated gross margin was 21.71%, down 6.6 percentage points from the same period last year. Profit attributable to owners was 404 million yuan, a decrease of 51.7% over the previous year, and the basic profit per share was 0.20 yuan.
The profitability of the core business declined markedly, and product prices were under pressure: in the first half of 2020, the company's silicone business revenue fell 17.29% year-on-year to 1,134 billion yuan, accounting for 24.47% of revenue, and the operating profit margin fell 10.34 percentage points to 8.09%. Demand for silicone was affected by the outbreak of the epidemic, downstream construction was blocked, and the DMC price trend in the first half of the year was weak. Prices began to rise after June. With the full launch of the real estate market in the fourth quarter, there is some room for prices to rise. Revenue from fluoropolymers decreased 18.95% year on year to 1,507 million, operating profit margin increased 0.6 percentage points year on year to 16.75% year on year, accounting for 32.50% of revenue. Refrigerant revenue fell 31.96% year over year to 1,039 million yuan, and operating profit margin fell 14.5 percentage points year over year to 7.35%, accounting for 22.42% of revenue. Since the price of the R22 quota system is still strong, this year's R22 quota has been reduced by about 16% compared to last year. The supply of R22 will be even more tight. It will support the high operation of R22 in the later stages, which will also support the price of fluorinated polymer products. Affected by increased production capacity, we expect R32 and R125 to continue to find the bottom out this year, but as the supply of R22 continues to shrink, the substitution effect of R32 and R125 will gradually become prominent, and there is great potential in the future.
The proposed spin-off of “Dongyue Hydrogen Energy Company” is expected to achieve a breakthrough in product development: the company's silicone division has been successfully spun off and listed on A-shares, and the total production capacity of silicone units will reach 600,000 tons/year in the future, which will contribute considerable profits to the company. Recently, Dongyue Hydrogen Energy Company launched a listing plan to return to the A-share Science and Technology Innovation Board. The hydrogen energy company is mainly engaged in the production and sale of hydrogen energy materials, hydrogen membrane materials, packaging materials and fluoropolymer fibers. Among them, fuel cell membranes and chlor-alkali ion membranes are the most promising products in the future. After listing, they are expected to accelerate the development and mass production of membrane materials, injecting new impetus into the company's sustainable development.
It will take time for the performance to recover. The target price is HK$4.00 to maintain the buying rating: Prices of most of the company's products rebounded after the first half of the year. We think the company's performance is at the bottom. It is expected that product prices will remain stable in the second half of this year, and demand is expected to gradually improve after next year. In the long run, the company's share of high-value-added products will continue to increase, and its business will transform into silicone, high-end polymers, and novel membrane products. We forecast the company's net profit of $854 million in 2020, giving a target price of HK$4.00, equivalent to 0.8 times PB in FY2021. There is room for an increase of 17.65% from the current price, maintaining the buying rating.