Incident 1: The company released its 2023 annual report. Revenue and net profit attributable to mother during the reporting period were 1.84 billion yuan and 320 million yuan, respectively, compared with +19.2% and +35.7%, respectively. Among them, revenue and net profit attributable to mother for single Q4 were 480 million yuan and 90 million yuan, respectively, -6.9% and -21.0% year-on-month, respectively, and +4.4% and +35.8% month-on-month.

Incident 2: The company released its 2024 quarterly report. Q1 achieved revenue of 450 million yuan, +11.3% year over year, and net profit of 67 million yuan to mother, -10.2% year on year and -27.6% month on month.

Multiple projects were put into operation one after another to support the 23-year improvement in performance, and the fall in helium prices affected quarterly results. 1) Successive commercialization of key electronics projects has contributed mainly to upward momentum. According to the company's announcement, gas supply will be commercialized in 2023, including Crystal Integrated A3, Huaxing Optoelectronics T9, Hefei Changxin Storage, Beijing Changxin Electric Collection, and Shanghai Dingtai Jiangxin. Among them, the Jinghe A3 project began charging fees at the end of 2023Q2; the Hefei Changxin project began charging fees in 2023Q3; Beijing Electric Power Collection began charging in October 2023; and Shanghai Dingtai and Huaxing Optoelectronics T9 began operating charges earlier in 2023. Looking ahead to 2024, the company will continue to welcome other important electronic bulk gas projects, including Qingdao Xinen, Guangzhou Yuexin, and Fangzhengwei, which will be commercialized one after another. Coupled with the 2023 commercialization project reflected in the full fiscal year 2024, it will provide strong support for the company's 2024 electronics business performance growth and bring revenue growth. 2) The fall in helium prices affects profitability, and the impact may have come to an end.

According to Steel Union data, the average prices of tubular helium in the Shanghai and Inner Mongolia markets during the 24Q1 period were 116.6 yuan/m3 and 100.9 yuan/m3, respectively, -68.2% and -69.9% year-on-year, respectively, -23.1% and -28.5% month-on-month; as of April 26, 2024, the prices of tubular helium in the Shanghai and Inner Mongolia markets were 107.5 yuan/m3 and 89.5 yuan/m3, respectively. According to the company's announcement, overall profitability in 2023 was affected by the decline in helium prices. The gross margin of retail gas supply for the electronics business fell from 48% to about 35% in 2022, and the gross margin of retail gas supply for the general industrial business fell from 28% to about 22%; the overall gross margin of the 24Q1 company fell 11 pcts year-on-year, from 41.7% in 23Q1 to 30.7%. The company's helium business often signs long-term price agreement mechanisms with customers. The actual average sales price drop is less than the average price fluctuation in the market price, and there is a certain lag in the price adjustment cycle, but the helium price drop is significant, and it may still have a certain impact on the company's profitability in 2024. Considering that the current helium price level has fallen to the bottom of the three-year history, the impact of the helium price adjustment cycle may be nearing its end. At the same time, 24Q1 has already participated in many projects in the market, and some have successfully won bids. Coupled with the company's full reserve orders in the early stages and sufficient momentum for subsequent growth, we believe that the company is expected to continue to achieve stepped growth at the operating level.

Based on the bulk advantages of electronics, extend electronic specialty gas to build a comprehensive electronic gas supplier. 1) The company is the largest domestic investor in electronic bulk gas and has a leading high share advantage. According to the company's announcement, with advanced and mature operation management experience and equipment technology advantages, the company won 25.4% of the new projects in the semiconductor display & IC field in September 2018-2022, ranking first in the country; in 2023, in an environment where industry demand declined year-on-year, the company received 10 projects, with an increase of more than 70,000 square meters of ultra-pure nitrogen, a market share of 24.6%, which is similar to the market share of the three major foreign investors. 2) Extend electronic specialties, or have a synergistic effect on the client side. There is a high degree of overlap between electronic specialty gas and electronic specialty gas in terms of downstream customers. The company is expanding to the electronic specialty gas business based on the leading domestic electronic market share, as well as the electronic specialty gas business operation experience and related professional teams that have begun to accumulate in the past joint venture era. As of December 2023, the company is building an electronic grade high-purity hydrogen chloride project in Shanghai's Jinshan Chemical Park; preparing a 3,000 ton electronic-grade nitrogen trifluoride project; it has already started a 120-ton hexafluorobutadiene project in Qianjiang, Hubei; in the Hefei Economic and Technological Development Zone, the company plans to invest a total of 390 million yuan to build an electronic special gas project. It is planned to start construction in March 2024 and be completed and put into operation in December 2025. After all the projects are delivered, it is expected to achieve an annual output of 300 tons of electron-grade hydrogen bromide and 1438 tons of high-purity helium hydrogen Qi 35.71 tons, 20,000 bottles of mixed alkane gas.

Helium gas capacity is expected to reach 8-9 million cubic meters/year in 2025, pointing to the world's Tier 1 helium suppliers. According to the company's announcement, the company's helium imports accounted for 10.1% of the country's total imports in 2021, making it the largest domestic supplier. In addition to gas sources divested by Linde, the company continues to develop independent gas sources. It is estimated that the proportion of independent air sources will reach 22%/57%/64% in 2023-2025, respectively. Furthermore, the company is one of the few domestic-funded companies in China that has achieved equipment support and technology autonomy and control throughout the supply chain. The company continues to build its own helium supply chain system, and began purchasing liquid helium cold boxes one after another in 2021. It is estimated that by the end of 2024/2025, the number of liquid helium cold boxes owned by the company will reach more than 70 and 100, respectively.

The company is expected to have a helium capacity level of about 4.5 million m3/year in 2024 and reach a capacity of 8-9 million m3/year in 25. At that time, it is expected to become a global Tier 1 helium company. At the same time, the company's “Helium and Helium-Based Mixture Intelligent Filling Construction” IPO project plans to invest 620 million yuan to build a 1 million cubic meter helium gas plant for intelligent filling, mixing, storage, recycling and purification. After completion, it will greatly increase the supply capacity for helium gas.

Investment advice: The company is a domestic leader in electronic bulk gas and helium. It has plenty of orders in hand and strong growth potential.

Taking into account factors such as the successive commercialization of the company's key projects and the significant decline in helium market prices, we adjusted the profit forecast. The company's net profit for 2024-2026 is 3.5/4.5/5.8 billion yuan (previous value of 3.8/5.1) billion yuan, respectively, with year-on-year growth rates of 8.9%/28.8%/28.5%, corresponding to the current stock price PE of 37.0x/28.7x/22.3x, respectively, maintaining the “increase in holdings” rating.

Risk warning: The increase in raw material costs exceeds expectations, demand falls short of expectations, new industry supply exceeds expectations, production safety, impairment of goodwill, and there is a risk that the data used in the report is delayed or not updated in a timely manner.