Key points of investment:

The company released its 2023 annual report, and the results were in line with expectations. The company achieved operating income of 3.334 billion yuan (yoy -30.1%), net profit to mother of 280 million yuan (yoy -42.4%), net profit after deduction of 209 million yuan (yoy -53.62%), overall gross sales margin in 2023 fell 2.67 pct to 13.4% year on year, and sales expenses decreased 13.93% year on year to 56 million yuan, mainly due to a decrease in revenue, and simultaneous reduction in sales related expenses such as commissions and credit insurance premiums. Management expenses decreased 2.22% to 1.63 million yuan year on year 100 million yuan. Financial expenses were -124 million yuan, mainly due to fluctuations in exchange earnings and rising interest income. The results were in line with expectations. Among them, 4Q23 achieved revenue of 725 million yuan (yoy -27.70%, QoQ -16.94%), net profit to mother of 0.42 million yuan (yoy +74.51%, QoQ -61.59%), 4Q23 gross sales margin increased by 5.96 and 4.07pct to 16.95%, respectively, and 4Q23 financial expenses were 59.91 million yuan, a significant increase over the previous month. The main reasons for the year-on-year decline in the company's revenue and net profit to mother in 2023 are: 1. Affected by high industry inventories and falling raw material prices, the company's fluorine refrigeration dosage price fell sharply; 2.142b's price and profit fell sharply; 3. Due to a decrease in demand for fluorine refrigerants and a decline in the price of sulfuric acid, the company's average sales price and sales volume of hydrogen fluoride declined year-on-year.

The company released its 2024 quarterly report, and the results slightly exceeded expectations. The company achieved operating income of 959 million yuan (yoy +23.3%, QoQ +32.3%), and realized net profit of 154 million yuan (yoy +672.5%, QoQ +270.8%). 1Q24 gross sales margins increased 12.63 and 5.82 pct year-on-month to 22.77%, respectively, and financial expenses were -31.3 million yuan (-9.79 million yuan in 1Q23), which slightly exceeded expectations. The main reason for the sharp year-on-month increase in net profit for 1Q24 is that on January 1, 2024, a quota system for third-generation refrigerants began to be implemented. Combined with demand such as downstream air conditioning production schedules, the volume and price of refrigerant products increased sharply.

In 2023, the volume and price of the company's fluorine refrigerants and hydrogen fluoride fell sharply, and profitability declined year-on-year. Entering 2024, refrigerants began a continuous sharp rise model, and the company's fluorine refrigeration dosage price increased sharply. In 2023, the company's production of fluorine refrigerants (including 142b), fluorine foaming agents and hydrogen fluoride fell by 16.75%, 34.71%, and 3.55% to 15.65, 2.00, and 132,100 tons, respectively, and export sales volume declined by 12.39%, 52.69%, and 6.47% to 12.34, 0.88, and 753 million tons, respectively. 2023 was a transition year before the official implementation of quota management. Although quota competition ended, the average sales price of fluorine refrigerants fell 21.18% year on year to 20,330 yuan/ton. The average sales price of fluorine foaming agents and hydrogen fluoride increased 15.95% and -7.37% year on year to 20,929 and 7541 yuan/ton respectively. The rise in fluorine foaming agent prices was mainly due to the reduction of R141b quotas in China in early 2023. In 2023, the company's gross margins of fluorine refrigerants and hydrogen fluoride declined by 3.74 and 6.82 pct year-on-year to 11.61% and 7.12%, respectively. The company's 141b quota for fluorine foaming agents accounts for 68.92% of the country. The market advantage is obvious. The gross margin of fluorine foaming agents increased by 23.91 pcts year-on-year to 55.13% in 2023. On September 1, 2023, the Ministry of Ecology and Environment issued a notice requiring that HCFC-141b should not be used as a foaming agent to produce insulation pipe products and solar water heater products from December 1, 2023. The scope of use of 141b in the market continues to narrow. The sales volume of 1Q24 fluorine foam products fell 16.7% year on year to 0.22 million tons, and the average price without tax fell 27.31% year on year to 16,288 yuan/ton. Entering 2024, quotas began to be implemented, and downstream demand exceeded expectations, including air conditioning schedules and consumer goods trade-in, and refrigerants began a continuous surge model. In 1Q24, the company's fluorine refrigerant sales increased 19.9% year on year to 32,300 tons, and the average sales price without tax rose 8.47% year on year to 23,829 yuan/ton. As of April 29, 2024, according to Baichuan Yingfu's quotation, the low-end prices of mainstream third-generation refrigerants R32, R125, and R134a in Zhejiang rose by 14,250, 17,500, and 4,500 yuan/ton respectively from the beginning of the year to 31,000, 44500, and 31,500 yuan/ton. The second quarter is the peak season for traditional refrigerants. Currently, export orders are recovering one after another, and foreign trade prices are also showing a slow upward trend. It is expected that the 2Q24 performance will continue to show a sharp increase over the same period last year. The company's quota is leading domestically, and subsequent price increases are highly flexible.

In the future, the company will extend the industrial chain to lay out downstream high-end fluorine chemicals, and also lay out four generations of new environmentally friendly refrigerants. According to the company's 2023 annual report, the Fujian Dongying AHF expansion project, Chongqing Xinchen R32 product filling project, and Shengmei Lithium Battery Phase I 500t/a lithium bisfluorosulfonimide (LiFSi) project achieved trial production in 2023. At the same time, 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. The company also announced that one of the projects to be invested in after the change in capital raised was the Zhejiang Sanmei R&D pilot construction project, including 1: research on synthesis technology for the novel environmentally friendly refrigerant HFO-1234yf (2,3,3,3-tetrafluoropropene); 2: research on synthesis technology for the novel environmentally friendly liquid foaming agent HFO-1233zD (1-chloro-3,3,3-trifluoropropene) co-production of the new environmentally friendly refrigerant HFO-1234ze (1,1,1,3-tetrafluoropropene); 3: research on synthesis technology for perfluorohexanone and hexafluoropropylene dimer and trimer. As of the end of 1Q24, the company's fixed assets increased by 323 million yuan to 1,087 million yuan compared to the same period last year, and the number of projects under construction increased by 91 million yuan to 277 million yuan over the same period last year.

Investment analysis opinion: The company is one of the three major domestic refrigerant companies. HFCs quotas have been issued for various companies in 2024. The bottom inflection point of the refrigerant price difference caused by industry pattern optimization and exceeding expectations in downstream demand is rising, and the price increase is flexible. Since the beginning of 2024, the price of third-generation refrigerants has continued to rise sharply, so we raised the company's 2024-2025 net profit forecast to be 12.51 billion yuan and 1,887 billion yuan (originally 8.32 billion yuan and 1.299 billion yuan), adding a net profit forecast for 2026 to 2,439 billion yuan, corresponding EPS of 2.05, 3.07, and 4.00 yuan. The PE corresponding to the current market value is 21X, 14X, and 11X, maintaining an increase in holdings rating.

wind? 7?? Risk warning: 1) Prices of raw materials have risen sharply; 2) refrigerant prices have fallen short of expectations; 3) downstream demand for refrigerants has fallen short of expectations; 4) New projects have fallen short of expectations.