The company is mainly engaged in R&D, production and sales of fluorine chemical products such as fluorocarbon chemicals and inorganic fluorine products. The company's fluorocarbon chemicals mainly include fluorine refrigerants and fluorine foaming agents. Among them, fluorine refrigerants mainly include HFCS refrigerants and HCFCs refrigerants, which are mainly used in household and commercial air conditioning systems and refrigeration systems for refrigerators, automobiles, etc.; fluorine foaming agents are mainly HCFC-141b, which is mainly used in the production of polyurethane hard foam. The company's inorganic fluorine products mainly include anhydrous hydrogen fluoride, hydrofluoric acid, etc., which are mainly used as basic raw materials or glass etching, metal cleaning and surface treatment in the fluorine chemical industry. 2023H1 achieved total operating income of 1736,2631 million yuan, a year-on-year decrease of 32.41%; total profit of 171,5349 million yuan, a year-on-year decrease of 62.46%; and net profit attributable to shareholders of the parent company was 129.7017 million yuan, a year-on-year decrease of 62.30%.

The company has a complete range of third-generation fluorine refrigerant products, and we believe that the company is expected to benefit from relevant quota allocation policies. 1) 2023H1. The company's operating revenue of fluorine refrigerant products was 133.990.46 million yuan, accounting for 77.17% of total revenue. Among them, fluorine refrigerants mainly include HFCs refrigerants and HCFCs refrigerants. 2) HCFCs are ozone-depleting substances (ODS). According to the Montreal Protocol, China officially implemented a freeze on production and consumption of HCFCs in 2013, implemented quota management on the production and consumption of HCFCs, implemented cuts in 2015, and completely eliminated after 2040. By the end of June 2023, the company had a production capacity of 14,400 tons of HCFC-22, 0.42 million tons of HCFC-142b, and 35,600 tons of HCFC-141b. 3) HFCs refrigerants are the third-generation mainstream refrigerants currently being developed in China. They are mainly used in refrigeration systems for air conditioners, refrigerators, automobiles, etc. The company's HFCS refrigerants mainly include basic refrigerants such as HFC-134a, HFC-125, HFC-32, and HFC-143a, as well as mixed refrigerants such as R410A, R404A, R407C, and R507. By the end of June 2023, the company had a production capacity of 65,000 tons of HFC-134a, 52,000 tons of HFC-125, 40,000 tons of HFC-32, and 10,000 tons of HFC-143a. 4) On September 21, 2023, the Ministry of Ecology and Environment issued a draft for comments on the “2024 Total HFC Quota Setting and Allocation Implementation Plan”.

The quota amounts allocated this time include the actual production and import volume of HFCs production units and import units in the baseline year, as well as import quotas set for import units with import demand but no customs import trade records in the baseline year. We believe that as a leading company in the fluorine chemical industry, the company is expected to benefit from it.

Prices of refrigerants such as R125 have increased recently, and we think the company can expect to benefit from this. 1) According to Baichuan Yingfu data, from January 1, 2024 to February 1, 2024, the high-end R125 market price in Zhejiang increased from 28,000 yuan/ton to 36,500 yuan/ton, with a price increase of 30.36%; the high-end R134a market price in Zhejiang increased from 29,000 yuan/ton to 32,500 yuan/ton, a price increase of 12.07%; the price increase in the high-end R32 market in Zhejiang increased from 17,250 yuan/ton to 21,000 yuan/ton, with a price increase of 21.74% ; The market price of R143a increased from 28,500 yuan/ton to 40,000 yuan/ton, with a price increase of 40.35%. 2) According to Zhuochuang information, in 2024, although production quotas during the year were the same as in 2023, in anticipation of a broad reduction in production quotas in 2025, expectations of short supply were not reduced in the later stages, and companies' willingness to make concessions clearly weakened, and the price promotion mentality may continue to affect the price trend during the year.

The company is steadily advancing the engineering projects under construction. 1) By the end of June 2023, the Zhejiang Sanmei 35 kV substation project had been completed. 2) Shengmei Lithium Battery has an annual output of 3000 t/a lithium bifluorosulfonimide (LiFSi) project. The first phase is 500t/a. Trial production began in early November 2023. 3) The company is steadily advancing Zhejiang Sanmei's 5000t/a polyperfluoroethylene propylene (FEP) and 5000t/a polyvinylidene fluoride (PVDF) projects, 90,000 tons of AHF technical improvement projects; Fujian Dongying 6000t/a lithium hexafluorophosphate (LiPF6) and 100t/a high-purity phosphorus pentafluoride (PF5) projects and AHF expansion projects. According to the project plan, the 6000t/a lithium hexafluorophosphate (LiPF6) project company is expected to enter trial production in the first quarter of 2024, and the 5000t/a polyperfluoroethylene (FEP) and 5000t/a polyvinylidene fluoride (PVDF) project companies are expected to enter trial production around December 2024.

Risk warning: risk of changes in the macroeconomic environment; risk of downstream market demand falling short of expectations; risk of production capacity under construction falling short of expectations.