Event: the Ministry of Finance and other five ministries issued a notice on the demonstration application of fuel cell vehicles (hereinafter referred to as "the notice"). The demonstration period is tentatively set at four years. During the demonstration period, the five departments will adopt the method of "substituting awards for compensation" to reward the shortlisted urban agglomerations in accordance with their goals.

The incentive funds shall be co-ordinated by localities and enterprises for the industrialization of key core technologies of fuel cell vehicles, the introduction of talents and team building, as well as the demonstration and application of new models and new technologies, etc. shall not be used to support fuel cell vehicle production investment projects and hydrogenation infrastructure construction.

Comment

The industrial application of fuel cell vehicles is inclined to the layout of the whole industry chain: the notice proposes to build the fuel cell vehicle industry chain to promote the technology research and development and industrialization of each link of the chain. It is necessary to rely on leading enterprises, take customer demand as the guide, organize relevant enterprises to build an industrial chain, strengthen technological research and development, and achieve breakthroughs in the research and development of relevant basic materials, key parts and complete vehicle products and their preliminary industrial application. Constantly improve the industrial chain and upgrade the technical level in the demonstration.

Meijin Energy has laid out the whole fuel cell industry chain, 1) upstream: the company's coke production capacity by-product coke oven gas can extract hydrogen 5.1 million tons per year, which can meet the annual consumption of 13000 medium-sized trucks or 9000 passenger cars. In addition, the company also has a hydrogenation station that has been put into operation and a hydrogenation station under construction. 2) Middle reaches: Hongji Chuangeng is the first enterprise in China to realize the large-scale industrialization of proton exchange membrane fuel cell membrane electrode. Hongji has an annual design capacity of 300000 square meters and its product cost is 20-30 per cent lower than that of the current mainstream membrane electrodes. Guohong hydrogen is one of the largest fuel cell stack manufacturers in the world, with an annual production capacity of 20, 000 fuel cells and 5000 fuel cell power assemblies.

At present, the production equipment are independent intellectual property rights, can be all localization, customization. 3) downstream:

Flying Auto sold 13.7% of fuel cell vehicles in 2019, making it one of the largest producers and sales of hydrogen fuel cell buses in China. The company plans to produce about 1000 various models in 2020, mainly hydrogen fuel cell vehicles, and achieve the annual production target of 3000 vehicles by 2022.

The industrial application of fuel cell vehicles is tilted to the field of medium and heavy commercial vehicles: the notice proposes to carry out the demonstration and application of new technologies and new models of fuel cell vehicles, and promote the establishment and improvement of relevant technical index system and test and evaluation standards. It is necessary to define the appropriate application scenarios and focus on promoting the industrial application of fuel cell vehicles in the field of medium-and long-distance and medium-and heavy-duty commercial vehicles.

Meijin Energy has released a heavy truck model, which is currently in the road test stage. Meijin Energy said on the interactive platform that Flying car successfully developed its first hydrogen fuel cell tractor at the end of 2019, and two fuel cell heavy truck prototype vehicles have been tested on the road. the test includes the functionality, durability and safety performance of the whole vehicle and its parts.

The industrialization of fuel cell vehicles is tilted to the model urban agglomeration: it is mentioned in the notice that the demonstration urban agglomeration and the provinces where the cities are located should strengthen up-down linkage and horizontal coordination. Each province should co-ordinate its own resources and increase its support to model cities and enterprises; the relevant provinces should strengthen organization and coordination to jointly support the demonstration and application of model urban agglomeration.

The Meijin hydrogen Energy Industrial Park already covers several major economic development areas and is supported by the local government. including Qingdao (Bohai Bay region), Jiaxing (Yangtze River Delta region), Foshan, Guangzhou, Yunfu (Guangdong-Hong Kong-Macau Greater Bay Area and surrounding areas) and other cities, as well as Jinzhong City, inland Shanxi Province. If the model urban agglomeration is formed, it will be more conducive to the development of the company's hydrogen energy business.

The company's main coking industry continues to improve: at present, the coke market is in a tight supply pattern, and coke prices are rising continuously, which is expected to lead to the release of the company's performance. According to the announcement, the company expects to achieve a net profit of 3.8-550 million yuan in the first three quarters, down 33.33% to 53.93% from the same period last year (having considered the transfer of Meijin shares in Tangshan Iron and Steel Co., Ltd.). It is estimated that the net profit in the third quarter is between 3.16 and 486 million yuan, an increase of 57.21% 141.79% over the same period last year, and the performance is expected to improve significantly.

Investment suggestion: the net profit from 2020 to 2022 is RMB 8.78 billion RMB 2.027 billion respectively. Considering the improvement of the supply and demand pattern of the coke industry and the continuous development of the fuel cell vehicle industry in the future, the company's performance and cash flow are expected to improve continuously and steadily. Give a buy-An investment rating with a 6-month target price of 8.40 yuan.

Risk hints: the proportion of major shareholder pledge is high, major shareholders reduce their holdings, macroeconomic downturn leads to lower-than-expected coke demand, hydrogen energy project construction is not as expected.