Description of the event

On the evening of August 25, Haohua Technology released its semi-annual report for 2023. The company achieved revenue of 4.304 billion yuan in the first half of 2023, an increase of 6.50% over the previous year; realized net profit of 503 million yuan, an increase of 1.94% over the previous year; realized net profit of 499 million yuan, an increase of 2.46% over the previous year. Among them, the company achieved revenue of 2,246 million yuan in the second quarter, an increase of 2.67% over the previous year, an increase of 9.16%; net profit of 275 million yuan, an increase of 1.58% over the previous year, an increase of 20.65% over the previous year; deducting non-net profit of 274 million yuan, an increase of 2.97% over the previous year, an increase of 21.88% over the previous year.

Profits bucked the trend and increased sharply, improving quality and efficiency, and operating quality continued to improve in the second quarter. The company maintained steady management, and profits bucked the trend and achieved month-on-month growth. Overall, the performance of various business segments is differentiated.

In the first half of the year, profits in the high-end manufacturing chemical materials sector rose sharply, and gross profit increased 8.7 pct year on year. At the same time, sales of various products such as polyurethane products, special coatings, nitrogen trifluoride, rubber sealing profiles, and organic transparent materials increased by more than 10% year on year, and the profits of corresponding subsidiaries all increased significantly. Furthermore, the gross profit of the carbon emission reduction business sector increased by 32.2% year on year, profit achieved a significant increase, and the net profit of the Southwest Hospital Group increased 61% year on year.

Demand for high-end fluorine materials such as PTFE and PVDF was weak, supply was sufficient, and the price spread narrowed month-on-month.

According to our tracking of the prices of high-end fluorine material products in the company's main business segment, the average market price of PTFE dispersion resin/East China PVDF (lithium battery binder) in the second quarter was 48/120,000 yuan/ton, -7.72%/-41.29%, respectively. In the specialty gas sector, Haohua Gas's 4,600 tons/year electronic gas project fully reached and actively expanded the market after delivery, but due to the release of a lot of production capacity in the industry, prices declined, with a single quarter -10.55%/-7.90% year-on-year. Judging from the perspective of subsidiaries, Haohua Gas's net profit was -11% compared to the same period last year.

On the cost side, sales expenses/management expenses decreased by 12.51%/16.31% year on year. During the reporting period, the company's actions to improve quality and efficiency, reduce fees and increase profits achieved results. Financial expenses increased by 140.86% year on year, mainly due to the high net exchange earnings base for the same period last year. R&D expenses increased 9.62% year on year, continued to increase R&D investment, and maintained core competitiveness.

It plans to issue shares to purchase 100% of Sinochem Blue Sky's shares. The fluorine chemical sector forms a complementary industrial chain. On August 15, 2023, Haohua Technology plans to acquire Sinochem Blue Sky and raise funds to expand production of fluorine chemical products from Sinochem Group. The total amount is about 145 billion yuan. Sinochem Blue Sky is originally a fluorine chemical enterprise under China Sinochemical Group. It has the entire industry chain from fluorite resources to HF to fluorocarbon chemicals/fluoropolymers/fluorine fine. It has R134a, R125, CTFE, PVDF, PVDF, trifluoroacetate, trifluoroacetate Other fist products, subsequent electrolytes, There are big plans to expand production of PVDF, fourth-generation refrigerants, etc., while Haohua Technology focuses on PTFE high-end fluoropolymers and fluoropolymers, and the fluorine chemical sector of Sinochem Blue Sky and Haohua Technology can form good complementarity and collaboration in the industrial chain. After the implementation of this restructuring, the integration of the two fluorine chemical companies under the two modernizations will deepen, and Haohua Technology's revenue and profit level will reach a new level.

Investment advice

We believe that the company has a rich R&D heritage and has become an obvious platform-based materials company driven by R&D innovation. It continues to grow at a high level while focusing on high-end and differentiation. At the same time, it focuses on high-end and differentiation. The product structure continues to be optimized, and cyclicality is declining. The company's capital expenditure accelerated during the “14th Five-Year Plan” period, and the company entered a period of rapid growth. Industrialization projects such as the Shuguangyuan 100,000 tires/year civil aviation tire project, the Southwest China Clean Energy Catalytic Material Industrialization Base Project, and the Northwest Hospital silicone sealing profile project are under construction and are scheduled to be completed and put into operation by the end of the year. Other key new projects include the 26,000 tons/year high-performance organic fluorine material project (including 18,500 tons of high-end PTFE resin), Limingyuan's 46,600 tons/year special new material project, and 100,000 units/year high-performance civil aviation tire project. Intensive capital expenditure increases continue to drive the company's profit growth.

We expect Haohua Technology's net profit from 2023-2025 to be 11.98, 13.37, and 1,751 billion yuan (based on the principle of prudence, we have not yet considered financing matters such as a fixed increase), EPS 1.31/1.47/1.92 yuan, and the corresponding PE is 24.34X/21.80X/16.65X. Maintain buy ratings.

Risk warning

(1) Risks caused by price fluctuations of raw materials and major products; (2) production safety risks;

(3) Environmental protection risks;

(4) Project commissioning progress fell short of expectations;

(5) Equity incentives fell short of expectations.