Incident 1: The company released its 2023 annual report. In 2023, the company achieved revenue of 1,344 billion yuan, a year-on-year decrease of 16.16%; realized net profit of 188 million yuan, a year-on-year decrease of 202%; realized net profit after deduction of 179 million yuan, a year-on-year decrease of 204%. With 2023Q4, the company achieved revenue of 426 million yuan in a single quarter, a year-on-year decrease of 0.02% and a year-on-month increase of 27.9%; realized net profit to mother of 150 million yuan, a decrease of 341% year-on-year, and a 235% increase in month-on-month losses.

Incident 2: The company released a performance forecast for the first quarter of 2024. With 2024Q1, the company expects to achieve net profit of 2.5 to 3.5 million yuan, a year-on-year decrease of 87.2%-90.9%, turning a month-on-month loss into a profit; it is expected to achieve net profit of 1-1.5 million yuan after deduction, a year-on-year decrease of 94.4% to 96.3%, turning a loss month-on-month into a profit.

Comment:

Revenue from traditional products declined, and depreciation increased due to the commissioning of new projects. The company's performance was under pressure in '23. Due to weak downstream market demand, production, sales and prices of the company's basic traditional products such as fluorine chemical products, pharmaceutical intermediates, and pesticide intermediates declined in 2023. In '23, the company's basic fluorine chemical products, pharmaceutical intermediates and pesticide intermediates business achieved revenue of 425, 2.75, and 314 million yuan respectively, with year-on-year declines of 17.3%, 6.7%, and 49.4%, respectively. Among them, the company's pesticide intermediate sales decreased by 27.9% year on year in '23. In addition, due to factors such as a drop in the price of hydrofluoric acid at the company's subsidiary Gaobao Technology and a decline in production due to technical reforms, the company accrued a goodwill impairment loss of 134 million yuan against the subsidiary Gaobao Technology.

In terms of new projects, within 23 years, the company completed and put into operation the 5,000 tons/year fluorobenzene project in April, the 70,000-ton anhydrous hydrogen fluoride reconstruction project was completed and put into operation in May, trial production of the DFBP project with an annual output of 5,000 tons, the refrigerant R245fa expansion project, the 5,000 ton R1234ze and 10,000 ton R1233zd project began trial production in March, September, and December, respectively. Since some of the new production projects still require processes such as process optimization, customer verification, and production capacity climbing, etc., there is a delay in fully achieving production and releasing the expected benefits. At the same time, due to a sharp rise in costs such as depreciation and amortization expenses, energy consumption, and personnel wages, etc., the company's 23-year performance was under pressure. As of the end of '23, the book value of the company's fixed assets was 1,386 billion yuan, an increase of 71.0% over the previous year. In '23, the company raised a total of 125 million yuan in depreciation of fixed assets, an increase of 54.9% over the previous year. In terms of expenses, the company's sales, management, R&D, and financial expenses in '23 were 2.3%, 6.7%, 2.2%, and 1.5%, respectively, with year-on-year changes of +1.6pct, +1.3pct, -0.3pct, and +1.5pct, respectively.

Refrigerant revenue increased 400% year on year in '23, and future room for production capacity to climb can be expected to reach 257 million yuan in revenue in '23, up 400% year on year; corresponding gross margin was 34.0%, up 15.8 pct year on year. Jiangxi Exon, a subsidiary of the company's refrigerant business, achieved net profit of 32.68 million yuan in 23, an increase of 513% over the previous year. The sharp increase in the company's refrigerant business revenue and profit was mainly due to the commissioning and sales of the new product R1234ze. In '23, the sales volume of the company's refrigerant business was 3280 tons, up 307% year on year; output was 5058 tons, up 258% year on year. In '23, the capacity utilization rates of the company's R245fa and R1234ze were only 36.6% and 27.9%, respectively. With the further increase in capacity utilization of these products and sales of the new product R1233zd, the company's refrigerant business revenue is expected to continue to grow rapidly.

It is planned to raise 636 million yuan in capital to continue to promote new products and new production capacity layout. In January 24, the company issued the “2024 Stock Issuance Plan to Specific Targets”. The company plans to raise 636 million yuan from no more than 35 specific investors, including the controlling shareholder Baiyun Group. The funds raised will be used to build the “Zhongxin Gaobao New Electrolyte Material Construction Project”, the “Construction Project with an annual output of 2000 tons of BPEF, 500 tons of BPF and 1000 tons of 9-fluorenone products”, the “1500 tons/day sewage treatment center construction project” and supplementary working capital, respectively. Among them, the “Zhongxin Gaobao New Electrolyte Material Construction Project” will add a project with an annual output of 6,000 tons of sodium fluoride and an annual output of 10,000 tons of sodium hexafluorophosphate. According to the company's announcement, construction of the first phase of the project with an annual output of 5,000 tons of sodium hexafluorophosphate and the 6,000 ton electronic-grade sodium fluoride project began at the end of April 23, and trial production is expected to be completed in 24Q3. In addition to the above projects, the company is also building a 2,3,5,6-tetrafluoroterephthalonitrile project with an annual output of 2,000 tons. The project is expected to complete trial production in July '24. The company continues to lay out new products and new production capacity, which will provide new profit growth points for the company's operations and open up space for the company's future growth.

Profit forecast, valuation and rating: Due to weak downstream demand, the company's basic fluorine chemical products, pesticide intermediates, and pharmaceutical intermediates business revenue declined in '23. In addition, a large number of new projects were completed and put into operation during the year 23. Since the expected benefits have not yet been achieved, and the increase in depreciation, personnel costs, etc. of the new projects, the company's performance was under pressure in '23. Considering that the current price of the company's traditional products is still low, we lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is expected to be 1.03 (down 16.8%) /1.65 (down 9.4%)/231 million yuan, respectively. The company continues to lay out new products and new production capacity, which will provide new profit growth points for the company's operations and maintain a “gain” rating.

Risk warning: Product and raw material prices fluctuate, downstream demand falls short of expectations, capacity construction risks, production capacity climbing progress falls short of expectations, product verification risks, environmental protection and production safety risks.