Full year of 2023:1) Achieved revenue of 13.309 billion yuan, +3.95% year over year; realized net profit of 1,216 billion yuan, +0.48% year over year; realized net profit after deduction of non-return to mother of 1,124 billion yuan, -0.17% year over year. 2) Gross profit margin for the whole year was 22.91%, -2.58pct; net profit margin to mother was 9.14%, -0.32pct year on year; net profit margin without return to mother was 8.45%, -0.35pct year on year. 3) The cost rate for the period was 11.58%, +0.32pct year on year, and the sales/management/R&D/finance expense ratios were 1.41%, 5.99%, 3.4%, and 0.77%, respectively, with year-on-year changes of +0.27, +0.12, -0.21, and +0.15pct, respectively.
2023Q4 in a single quarter: 1) Achieved revenue of 3,529 billion yuan, +16.19% year-on-month; realized net profit of 365 million yuan, turning a loss into profit from the previous year, +11.84% month-on-month; realized net profit without return to mother of 319 million yuan, turning a year-on-year loss into a profit, +5.91% month-on-month. 2) Q4 gross profit margin of 19.16% in a single quarter, +5.47pct year on year, -5.24pct; net profit margin to mother 10.34%, +12.16pct year on year, +0.56pct month on month; net profit margin without return to mother 9.05%, +11.93pct year on year, +0.01pct month-on-month.
By business: 1) Air separation equipment: revenue of 4.24 billion yuan, up 5.7% year on year, gross profit margin of 31.52%, +4.77pct year on year. The amount of new equipment sales contracts signed throughout the year reached 6.470 billion yuan, of which the annual foreign trade contract amount reached 908 million yuan, accounting for 14.03%. 2) Gas sales: Revenue of 8.19 billion yuan, up 2.3% year on year, gross profit margin of 18.75%, -6.54 pct year on year. The profit margin of the gas business has declined, mainly due to a sharp drop in specialty gas prices. Actively expanding investment models and investment areas, the company signed a number of new gas investment projects throughout the year, such as Shandong Hangxi, Henan Jinkai, and Tianze, Shanxi, etc., with an oxygen production capacity of 450,000 Nm3/h (nitrogen-containing projects), and a cumulative gas investment of 3.2 million Nm3/h as of the end of 2023. The company signed a new Indonesian gas project in 2023, taking the first step in the internationalization of the gas industry.
Upstream equipment lead+midstream gas leader, with obvious advantages in the whole industry chain, domestic substitution, product structure upgrade, industry pattern optimization, and solid long-term growth logic.
1) The advantages of the entire industry chain are obvious. As the leader of domestic air separation equipment, Hangzhou Oxygen has a market share of more than 50%. Relying on the advantages of air separation devices, it has moved from upstream equipment manufacturing to midstream gas supply. Its market share in the incremental market is close to 50%, and the whole industry chain has obvious advantages. China's industrial gas market is close to 200 billion yuan, and overseas companies still have a large share of the stock market; at present, domestic manufacturers have a clear advantage in new orders, foreign investment is gradually withdrawing from the Chinese market, and there is plenty of room for domestic replacement. 2) The two giants, Yingde and Hangzhou Oxygen, are expected to usher in a landmark integration within 3 years, and continuous verification of the industrial gas pattern optimization logic. Judging from the history of global industrial gas development, giants such as Linde and France Air have continued to expand their scale in mergers and acquisitions, and the market has gradually evolved from disorderly competition to oligopolies, and the competitive pattern has improved. As two major domestic industrial gas companies, Yingde and Hangshi complement each other's advantages in equipment manufacturing and gas supply, and the synergy effect is obvious. Driven by Hangzhou Capital, the indirect controlling shareholder of Hangzhou Oxygen, the two are expected to be integrated within 3 years, and the integration of the two major gas companies is expected to further expand their scale advantage.
Profit forecast: The company's profit for 2023 exceeded our previous profit forecast, but considering the high uncertainty of the domestic economic recovery situation, we slightly lowered our profit forecast. Net profit to mother is estimated at 14.5, 16.8, and 1.94 billion yuan (24-25 years ago values: 15.5, 1.97 billion yuan), corresponding to PE 19.31, 16.70, and 14.51 times, maintaining the “buy” rating.
Risk warning: Fluctuating gas prices, capacity construction falling short of expectations, mergers and acquisitions falling short of expectations