Key points of investment:

The company released its 2023 three-quarter report, and its performance fell short of expectations. During the reporting period, the company achieved revenue of 6.274 billion yuan (YoY -3%), net profit of 687 million yuan (YoY -9%), and net profit of 677 million yuan (YoY -10%) after deducting non-return net profit of 677 million yuan (YoY -10%). Among them, 23Q3 achieved revenue of 1,970 billion yuan (YoY -16%, QoQ -12%) in a single quarter, realized net profit of 184 million yuan (YoY -30%, QoQ -33%), and net profit of 178 million yuan (YoY -32%, QoQ -35%), and single-quarter results fell short of expectations. 23Q3 The company's gross sales margin was 26.06%, up 1.94pct year on year, up 0.31 pct month on month, net profit margin 9.35%, down 1.87 pct year on year, down 2.90 pct month on month.

In terms of expenses, the company's sales, management, finance, and R&D expenses increased by 2.32 pct to 17.07%? Sales of new 23Q3 polyurethane materials increased significantly, but due to a significant decline in sales of PTFE and special coatings, and a drop in the prices of fluorine rubber and rubber sealing products, the company's performance was under pressure. In the 2023Q3 quarter, the company's polytetrafluoroethylene resin completed sales volume of 0.64 million tons (QoQ -12%), achieving revenue of 218 million yuan (QoQ -16%) and an average sales price of 34,200 yuan/ton without tax (QoQ -4%); fluorine rubber completed sales volume of 440 tons (QoQ +8%), achieving revenue of 37 million yuan (QoQ -5%), with an average sales price of 84,000 yuan/ton without tax (QoQ -11%); and 1,562 tons of fluorinated gas (QoQ +15%), achieving revenue of 1,562 tons (QoQ +15%), achieving revenue of 1.56 million yuan (QoQ +15%) ( QoQ +13%), the average sales price without tax is 101,000 yuan/ton (QoQ -1%); the sales volume of rubber sealing products was 2.42 million units (QoQ +9%), achieving revenue of 66 million yuan (QoQ -11%), the average sales price excluding tax is 272 million yuan/10,000 pieces (QoQ -18%); special tires completed sales volume of 10,800 units (QoQ +5%), achieving revenue of 62 million yuan (QoQ +20%), with an average sales price of 0.58 million yuan/strip without tax (QoQ +14%); New polyurethane materials complete sales 0.52 million tons (QoQ +57%), achieving revenue of 111 million yuan (QoQ +57%), average sales price of 21,300 yuan/ton without tax (QoQ +1%); special coatings completed sales volume of 0.35 million tons (QoQ -17%), achieved revenue of 140 million yuan (QoQ -13%), and achieved an average sales price of 39,700 yuan/ton without tax (QoQ +5%).

Project construction is steadily advancing to support development. It is proposed to acquire 100% of Sinochem Blue Sky's shares and accelerate the integration of the fluorine chemical industry chain. As of 2023Q3, the company's ongoing construction projects amounted to 1,583 million yuan, an increase of 518 million yuan over the end of 2022. According to the 2023 mid-year report, 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 are actively promoting product production and market development. Industrialization projects such as the Shuguangyuan 100,000 tire/year civil aviation tire project, the Southwest China Clean Energy Catalytic Materials Industrialization Base Project, and the Northwest China Silicone Sealant Profile Project are under construction and are scheduled to be completed and put into operation by the end of the year. The 26,000 tons/year high-performance organic fluorine material project of Zhonghao Chenguang along the beach has entered a critical construction period. Previously, the company issued a report on issuing shares to purchase assets and raising supporting capital and related transactions (draft): 1) The company plans to issue shares to Sinochem Group to buy 52.81% of its shares in Sinochem Blue Sky, and issue shares to Sinochem Asset to purchase 47.19% of its shares; 2) The company plans to raise no more than 72,48634 million yuan in supporting capital from no more than 35 eligible specific investors, including foreign trade trusts and Sinochem Capital Venture Capital, for the “New 20,000 tons/year PVDF” project, 200,000 tonnes Projects such as “/year lithium-ion battery electrolyte project (phase I)”, “annual output of 19,000 tons of VDF, 15,000 tons of PVDF and supporting 36,000 tons of HCFC-142b raw materials (phase II)”, and “supplementary working capital or debt repayment”.

Sinochem Blue Sky has been deeply involved in comprehensive research on fluorine chemicals for more than 70 years. Currently, it is mainly engaged in R&D, production and sales of fluoropolymer materials, fluoropolymers, and fluoropolymers, and fluorine fine chemicals. The products cover almost the entire fluorine chemical industry chain. Among them, R123 products are exclusively produced globally, with 70,000 tons of R134a and 30,000 tons of R125 products ranking in the top three global market shares. The current integration of Sinochem's internal resources and strong alliances will further improve the layout of Haohua's fluorine chemical industry. (Note: This matter is yet to be approved by the Shanghai Stock Exchange)

Investment analysis opinion: Q3 performance fell short of expectations. Prices of some products fell, and the company's 2023-2025 net profit forecasts for 2023-2025 were lowered to 9.02, 11.57, and 1,477 billion yuan (original values were 11.97, 14.37, and 1,779 billion yuan; note: Sinochem's blue sky was not taken into account). The current market value corresponding to PE is 31, 24, and 19X respectively. According to Wind's unanimous expectations, it is comparable to the company Yonghe shares. China Shipbuilding's 2023 draw PE is 38X, maintaining an “increase in value” rating.

Risk warning: 1) The release of new production capacity falls short of expectations; 2) product prices have fallen sharply; 3) raw material prices have risen sharply; 4) Recently, the company received an audit inquiry letter from the Shanghai Stock Exchange regarding the application to issue shares to purchase assets and raise supporting capital.