Description of the event

The company released its semi-annual report for 2023, achieving revenue of 4.3 billion yuan (+6.5% YoY), net attributable profit of RMB 5.0 billion (+1.9% YoY), and realized attributable non-net profit of RMB 50 billion (+2.5% YoY). Among them, Q2 achieved revenue of 2.25 billion yuan (+2.7% year on year, +9.2% month on month), net attributable profit of 270 million yuan (+1.6% year on year, +20.7% month on month), and realized attributable non-net profit of 270 million yuan (+3.0% year on year, +21.9% month on month).

Incident comments

Sales of new polyurethane materials and specialty coatings have increased significantly. 2023H1, the company's sales volume of PTFE resin, fluorine rubber, fluorinated gas, rubber sealing products, special tires, new polyurethane materials and special coatings increased by -7.8%, 5.1%, 21.0%, -0.5%, -14.3%, 10.1%, and 6.2%, respectively. Among them, sales of new polyurethane materials and special coatings increased significantly.

Sales revenue of 5.0, 0.8, 3.0, 1.3, 0.9, 140 million and 260 million yuan respectively was achieved, with year-on-year changes of -17.8%, -35.2%, 10.0%, 11.2%, -8.2%, 4.9%, and 10.1%, respectively. 2023H1, the gross profit of the high-end manufacturing chemical materials sector increased 8.7% year on year, and the gross profit of the carbon emission reduction business sector increased 32.2% year on year. The company has increased its marketing efforts, enhanced product profitability and customer stickiness, and achieved revenue generation and efficiency. 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; the carbon emission reduction business of the subsidiary Southwest Hospital continued to improve, and efficiency increased dramatically. At 2023H1, net profit attributable to Southwest Hospital, Limingyuan, and Shuguang Yuan was +61.3%, 31.9%, and 25.0% year-on-year to 0.37, 1.26 billion yuan, and 29 million yuan, respectively. In terms of planning projects, at present, the Haohua Gas 4,600 tons/year electronic gas project and the Zhonghao Chenguang 2,500 tons/year PVDF project have been completed and put into operation, and the company is actively promoting product production and market development. 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. Zhonghao Chenguang's 26,000 tons/year high-performance organic fluorine material project at the Yantan base has entered a critical construction period.

Gross margin declined slightly, cost control was reasonable, and net interest rate increased. The gross margin of 2023H1 was 24.6%, a year-on-year decrease of 2.5 pct. 2023H1, the company's ability to control expenses has gradually increased. The cost rate for the period was 14.0%, a decrease of 1.4 pct compared to last year, mainly due to the reduction in the management cost rate.

The proposed acquisition of Sinochem Blue Sky Pricing will bring growth through fund-raising projects. The company plans to purchase 52.8% and 47.2% of its shares in Sinochem Blue Sky from Sinochem Group and Sinochem Asset. The transaction price of the asset Sinochem Blue Sky, which is the subject of this restructuring, is 7.24 billion yuan. The issue price is 37.07 yuan/share, and the listed company will issue an additional 195 million shares. After issuance (not considering fundraising), China Haohua's shareholding ratio dropped from 64.8% to 53.3%, with Sinochem Group and Sinochem Asset holding 9.3% and 8.3% respectively; 2) The company plans to privately issue no more than 7.24 billion yuan of supporting funds to no more than 35 eligible specific investors, including Foreign Trade Trust and Sinochem Capital Venture Capital, for the “New 20,000 tons/year PVDF Project”, “200,000 tons/year PVDF project (phase I)”, “200,000 tons/year of lithium-ion battery electrolyte project (phase I)”, “19,000 tons/year VDF, 15,000 tons of PVDF and 15,000 tons of PVDF and 15,000 tons of PVDF, respectively. Package 3.6 Projects such as the 10,000 ton HCFC-142b raw material project (phase II)” and additional working capital or debt repayment. The transaction will promote deep integration between the listed company and the target company's fluorine chemical business and further enhance the synergy effect.

Investment suggestion: The company is a technology-leading new materials platform enterprise. The acquisition of Sinochem Blue Sky, a high-quality fluoride chemical standard, will help take its comprehensive strength to the next level. The company's net profit attributable to 2023-2025 is estimated to be 1.26 billion, 15.4 billion yuan, and 1.88 billion yuan respectively (Sinochem Blue Sky's merger report has not yet been considered), maintaining the “purchase” rating.

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Risk warning

1. The progress of the project fell short of expectations;

2. The risk of lack of technical advantages.