Incidents:
According to the announcement, the company recently received a “Letter of Commitment Not to Reduce the Company's Shares” issued by Chairman and General Manager Zheng and other company executives.
Directors, executives, etc. voluntarily promised not to reduce their holdings of the company's shares. According to the announcement, based on confidence in the company's future development and recognition of the company's long-term value, in order to promote the company's sustainable, stable and healthy development, maintain the stability of the capital market, and effectively protect the interests of all shareholders, company directors, senior management, etc. voluntarily promised not to reduce their holdings of the company's shares for 18 months from February 6, 2024.
The controlling shareholder, Hangzhou Capital, plans to acquire Yingde Gas and promises to promote the restructuring with the listed company Gas Power Technology (the main asset is Yingde Gas) after the transaction is completed. It is the largest independent industrial gas supplier in China.
In 2020, Gas Power Technology (including Baosteel Gas) had revenue of 19.4 billion yuan, the market share of the independent third-party gas supply market was 22.3%, and net profit was 2.3 billion yuan. 80% of the company's revenue comes from air separation gas, and the vast majority comes from on-site gas supply. The company has strong profitability, with a 2020 ROE of 20%, gross profit margin of 28%, and net interest rate of 13.2%.
According to the announcement, after the transaction was completed, Hangzhou Capital held 30% of the buyer's SPV shares and was the largest shareholder (non-controlling shareholder) of the buyer's SPV. After the seller has completed the internal restructuring, the target company will mainly be engaged in the manufacture and sale of on-site gas production, retail gas, special gas, and clean energy products, and is in the same business as Hangzhou Oxygen Co., Ltd.'s main business.
Hangzhou Capital promises: Hangzhou Capital will push the listed company to sign an asset restructuring agreement with the buyer SPV within 36 months after the transaction is completed, and the listed company will disclose the transaction plan.
If the listed company and the buyer's SPV carry out asset restructuring, the listed company will achieve restructuring and integration of high-quality assets in the same industry, which will help the listed company to exert synergies, expand production scale, improve asset quality, optimize financial conditions, and enhance market competitiveness.
Hangzhou Oxygen Co., Ltd.: Towards a leader in industrial gas in China! Substitute domestic production to create an advantage in the entire industry chain. The company's pipeline gas business has accelerated in recent years, with a stock operation market share of 10%, and a newly signed gas operation market share of 40-50%. It is estimated that by the end of 2025, the company's gas operating scale will exceed 3 million square meters, the compound growth rate of gas business revenue from 2022-2025 will reach 23%, and the company's gas business revenue will account for more than 75% in 2025.
The 2022 equity incentive plan was granted. Net profit is expected to grow steadily in 2023-2024. Equity incentives will be lifted over a three-year period, 24, 36, and 48 months, respectively, from the date the registration of the restricted shares granted accordingly. The unlocking ratios are 40%, 30%, and 30%, respectively. Equity incentive performance (net profit after deduction of non-return to mother) unlock conditions: Based on the average net profit deducted from non-return to mother in 2018-2020 (i.e., 688 million yuan), the growth rate for 2022 to 2024 was not less than 60%, 66%, and 73%, or 1,101, 11.43, and 1,191 billion yuan.
Growth path: Demand growth+increase in market share+increase in profitability. Long-term profit margin has exceeded several times (1) Industry demand continues to grow: 1) The total demand in the industrial gas market is nearly 200 billion yuan. Among them, the third-party outsourcing market is growing rapidly. The outsourcing ratio is expected to increase from 41% in 2021 to 45% in 2025. 2) In 2021, the size of China's industrial gas market increased by 10% year-on-year, and China's per capita gas consumption accounted for 30-40% of the per capita gas consumption in developed countries such as Western Europe and the United States. China's industrial gas market is expected to grow at a compound rate of 6-8% by 2025. (Source of the above data: Please refer to the company's in-depth report “Hangzhou Oxygen Stock In-depth PPT: Domestic Substitution, Product Upgrade, Towards Industrial Gas Leader”, July 8, 2022) (2) The company's market share increased: Under the domestic substitution trend, the company's stock share in the third-party gas supply market in 2021 was 9%, and the incremental share was 45%. It is expected that the company's share of the third-party market will double in 2025; it is expected that the company's share of the third-party stock market will double in 2025; it is expected that the long-term company's share of the third-party stock market will be 3-4 times that of 2021 (30-40% market share).
(3) The company's product structure has been upgraded, and profitability continues to increase: 1) The gas business's share of revenue continues to increase, while the growth and profitability of the gas business is higher than that of the equipment business. 2) The share of revenue from the retail business in the gas business continues to rise, and the profitability of retail gas is higher than that of pipeline gas. 3) The share of revenue from the electronic specialty gas business in the retail gas business will continue to increase, and the profitability of the electronic specialty gas business is far higher than that of the general industrial gas retail business.
Profit forecasts and investment advice
The company is a leading domestic air separation equipment and industrial gas enterprise. Technology research and development advantages, equipment-EPC-gas operation in the entire industry chain, brand advantages, system and management advantages form the core competitiveness of the company. We expect the company's net profit to be 1.23 billion yuan, 1.45 billion yuan, and 1.73 billion yuan respectively in 2023-2025, with year-on-year growth rates of 1%, 18%, and 19%, respectively, and a three-year compound growth rate of 13%, corresponding to PE 20, 17, and 14 times, respectively. Maintain a “buy” rating.
Risk warning
Controlling shareholder transaction uncertainty risk, industry competition risk and market risk, gas price fluctuation risk.