Matters:

Company announcement: On May 22, 2024, the company issued an announcement to sign a daily operating contract. The announcement shows that Jinhong Gas recently signed a “gas supply contract” with Shandong Ruilin Polymer Materials Co., Ltd. and approved the construction of a new 23,000 Nm? The /h air separation unit and its ancillary facilities supply industrial gas products — oxygen and nitrogen — to each other. According to contract estimates, the contract amount is approximately RMB 1.86 billion (excluding tax), subject to actual conditions.

Guoxin Chemical's opinion: 1) The company follows the strategic idea of “vertical and horizontal development”, vertically expands product categories, expands service methods, horizontally expands its business radiation radius, and gradually develops into a leading comprehensive gas company. 2) In terms of on-site gas production business, the company relies on its technical characteristics, engineering capabilities and supporting operation and maintenance service quality, while continuing to develop small and medium-sized on-site gas generation, breaking through medium and large-scale on-site gas production projects suitable for the company, thereby strengthening collaborative efficiency and further improving the service level of on-site gas supply. 3) The special gas product matrix was completed, and wait for the new products to be put into production in an orderly manner to boost revenue and profit. With the steady expansion of the company's on-site gas production business, the certainty of the company's revenue and profit will further increase. Furthermore, the commissioning of new specialty gas products will continue to drive the company's profit growth and maintain a “buy” rating.

Commentary:

Firmly implement the “vertical and horizontal development” strategic idea to build a leading comprehensive gas enterprise company that always adheres to the vertical and horizontal development strategy: vertically develop and expand new product categories, develop and produce high-value-added gas categories such as hexafluorobutadiene and octafluorocyclobutane on the basis of existing industrial retail gas and specialty gases such as ultrapure ammonia. On the basis of business methods, the company mainly carried out on-site gas production service methods based on the existing retail business, and gradually transitioned from small to medium-sized on-site gas production orders to medium and large-scale on-site gas production businesses; widened the radiation radius of the business horizontally to achieve a layout with advantages across regions, excluding companies with advantages across regions Outside of Jiangsu Province, According to the distribution and demand of downstream customers, the company has achieved business breakthroughs in Hunan Province, Zhejiang Province, Chongqing, Shanghai and other places. The company is technology-led, provides customers with innovative and sustainable gas solutions, and has developed into a leading enterprise in the comprehensive gas supply service industry.

The company has successively received orders for medium and large-scale on-site gas production services, and business stability was further improved. In June 2023, the company established a large industrial division to develop medium and large-scale on-site gas production businesses. In August 2023, the company acquired Jishan Mingfu Gas Co., Ltd. and obtained 3 sets of air separation plant sites in Yuncheng City, Shanxi Province, to achieve a breakthrough in the medium-sized on-site gas generation (air division group) project. On March 22, 2024, the company signed an “Investment and Supply Contract” with Yingkou Jianfa Shenghai Nonferrous Chemical Co., Ltd. to supply oxygen and nitrogen to customers through the construction of a new 66,000Nm3/h air separation device. According to contract estimates, the contract amount is approximately RMB 2.4 billion (excluding tax). The gas supply is expected to begin in August 2025, and the contract period is 20 years. On May 22, 2024, the company announced that it recently signed a “gas supply contract” with Shandong Ruilin Polymer Materials Co., Ltd. to build a new 23,000 Nm? The /h air separation unit and its ancillary facilities supply industrial gas products — oxygen and nitrogen — to each other. According to contract estimates, the contract amount is approximately RMB 1.86 billion (excluding tax), and the contract period is 20 years. According to estimates, the two latest on-site gas production orders in 2024 will generate annual revenue for the company. After the steady operation of all the company's medium and large-scale on-site gas production businesses, it is expected to generate about 465 million yuan of revenue for the company every year. As the company's large-scale on-site gas production orders increase, the company's revenue and profit certainty will further increase.

Electronic specialty gas products achieve a matrix layout, stabilizing the company's position in the electronic gas sector. The company currently supplies specialty gas products such as ultra-pure ammonia, high-purity nitrous oxide, high-purity hydrogen, and high-purity helium in batches to well-known semiconductor customers such as SMIC, Hynix, Lianxin Integrated, Jita, China Resources Microelectronics, and Huali Integrated. In terms of superior products, the company has deployed ultra-pure ammonia in Meishan, ultra-pure ammonia in Vietnam, and high-purity nitrous oxide in Pingdingshan. Currently, most production capacity has reached trial operation, and the gradual decline in new production capacity will lead to an increase in the company's revenue and profit. In terms of new products, electronic-grade ethyl orthosilicate and high-purity carbon dioxide, which will be put into production in 2023, have also been certified by some first-line customers to achieve small-batch supply; 7 products, including the new product perfluorobutadiene under construction, are in the process of industrialization, and trial production is expected to gradually be achieved by the end of 2024. With the orderly launch of the company's electronic specialty gas products and the introduction of certification, the company's market position in the electronic gas field will be further stabilized while continuously optimizing the company's product structure.

Investment advice:

Maintain a “buy” rating. Based on the characteristics of high barriers to electronic specialty gas certification, the company's core products will maintain a competitive advantage for clients for a long period of time, and with the rolling launch of the company's new products, the company's product structure will continue to be optimized, and there is still room for continuous optimization of gross margin. As the company gradually receives orders for medium and large-scale on-site gas production projects, the company's revenue and profit stability will be further enhanced. We maintain our forecast of the company's 2024-2026 net profit of 4.01/497/614 million yuan. The current stock price corresponds to PE at 22/17/14X, respectively, maintaining a “buy” rating.

Risk warning:

The risk of falling prices of main products; the risk that the commissioning progress of on-site gas production projects falls short of expectations; the risk that the production progress of new electronic special gas products falls short of expectations.