The company plans to repurchase shares held by major shareholders at a premium
The Company issued a notice on the repurchase of shares of major shareholders on October 24, 2023. The Company signed a “Share Repurchase Agreement” with a wholly-owned subsidiary (seller) of Xinhualian Holdings. 1. According to the agreement, the seller plans to sell a total of 521 million shares of the Company (accounting for about 23.12% of the company's issued share capital on the date of this announcement), and the company plans to repurchase this batch of shares for cancellation at a total consideration price of HK$3.7 billion (equivalent to RMB 3.46 billion), that is, repurchase shares of about HK$7.1 billion per share; 2. Dongyue Fluorosilicon Technology (a wholly-owned subsidiary of the Company) and Xinhualian Holdings will enter into an “Share Transfer Agreement”; according to the agreement, Dongyue Fluorosilicon Technology (a wholly-owned subsidiary of the Company) and Xinhualian Holdings will enter into a “Share Transfer Agreement”; according to the agreement, Dongyue Fluorosilicon Technology (a wholly-owned subsidiary of the Company) and Xinhualian Holdings plans to purchase the total shares of the target company. Consideration RMB 34.6 RMB 100 million (equivalent to HK$3.7 billion, including RMB 1.75 billion (shares in Dongyue Polymer), RMB 1.54 billion (shares in Dongyue Silicon), and RMB 165 million (shares in Dongyue's future hydrogen energy). A share repurchase transaction and a share sale transaction are mutually conditional, and the other transaction must become unconditional before it can be carried out.
Development trends
The governance structure has been optimized, and the repurchase plan is beneficial to small and medium-sized shareholders of listed companies. We believe that the repurchase plan has a positive impact on the company's long-term development, because (1) according to the repurchase plan, the company plans to use the price from the stock sale transaction to supplement the cash used for share repurchases, which will not have a significant impact on the company's net cash flow and provide room for the company's subsequent capital expenditure at the operating level. (2) After the transfer of shares in subsidiaries Dongyue Polymer and Dongyue Silicon, it did not affect the scope of the company's merger, and fundamentals remained stable. (3) The repurchase price is set at HK$7.1 per share for the repurchase of shares, which is a premium of about 31.02% compared to the average closing price of about HK$5.42 per share for the 5 consecutive trading days before the date the agreement was signed. After the repurchase plan is completed and the repurchase of shares is cancelled, the company expects the company's shareholders to account for an unaudited net asset value per share to increase from RMB 6.47 per share to RMB 6.93 per share, which is beneficial to the small and medium shareholders of listed companies.
The refrigerant cycle is about to reverse, and the refinement of fluoropolymers has been upgraded. As of 1H23, the company has an R22 production capacity of 220,000 tons/year, and R125 and R32 each have a production capacity of 60,000 tons/year. The company's second- and third-generation refrigerant production capacity leads the industry. The 2024 HFCs total quota setting and allocation plan has been passed, and refrigerant prices are expected to usher in a new boom cycle. At the same time, the company has a production capacity of 5.5 million tons/year for PTFE and PVDF respectively. In recent years, the company's fluoropolymer sector has been continuously refined and upgraded, and has continued to expand into high-precision applications in the semiconductor and new energy fields while consolidating the quality advantages of the original products.
Profit forecasting and valuation
The corporate governance structure has been optimized, and the third-generation refrigerant quota is nearing implementation. We will maintain net profit of 10.8 billion yuan and 1.78 billion yuan in 2023 and 2024. The current stock price 2023/2024 price-earnings ratio is 10.5x and 6.1x, respectively. We are optimistic about the long-term development potential of the company's new project after it is put into operation, maintaining an outperforming industry rating and target price of HK$8/share. The corresponding price-earnings ratios for 2023/2024 are 16.7x and 10.1x respectively, which is 42.3% upward from the current stock price.
risks
The recovery in downstream demand fell short of expectations, competition intensified, and project commissioning did not go smoothly.