Event: On April 30, 2024, Sanmei Co., Ltd. released its 2023 annual report. The company's revenue in 2023 was 3.334 billion yuan, down 30.12% year on year; net profit to mother was 280 million yuan, down 42.41% year on year; deducted non-net profit was 209 million yuan, down 53.62% year on year. The corresponding company's 4Q23 revenue was 725 million yuan, down 16.94% from the previous month; net profit to mother was 42 million yuan, down 61.59% from the previous month.
On April 30, 2024, Sanmei Co., Ltd. released its 2024 quarterly report. The company's 1Q24 revenue was 959 million yuan, up 23.28% year on year, up 32.25% month on month; net profit to mother was 154 million yuan, up 672.53% year on year, up 270.79% month on month.
Comment: The volume and price of major products plummeted, and the company's performance in 2023 was under short-term pressure. The company's revenue in 2023 was 2,09/1.85/567 billion yuan, YoY was -30.95%/-45.14%/-13.36%, respectively; gross margins were 11.61%/55.13%/7.12%, respectively, with year-on-year changes of -3.74/+23.91/-6.82pcts, respectively. The year-on-year decline in the company's performance is mainly related to the decline in sales volume and unit price of fluorine refrigerants. Due to adverse factors such as high industry inventories and falling raw material prices, the profit margins of fluorine refrigerants have been compressed. The average sales price of the company's fluorine refrigerant/fluorine foaming agent/hydrogen fluoride in 2023 was 2.03/2.09/0.75 million yuan/ton, respectively, and YoY was -21.18%/15.95%/7.37%, respectively. In terms of sales, sales of major products all showed a downward trend. In 2023, the company's sales volume of fluorine refrigerant/fluorine foaming agent/hydrogen fluoride was 1234/0.88/75,300 tons, respectively, and YoY was -12.39%/-52.69%/-6.47%, respectively.
The company's sales expenses decreased 13.93% year on year, the sales expense ratio was 1.67%, up 0.31 pcts year on year; financial expenses increased 23.12% year on year, financial expenses rate was -3.72%, down 0.34 pcts year on year; management expenses decreased 2.22% year on year, management expenses were 4.88%, up 1.39 pcts year on year; R&D expenses increased 38.49% year on year, and R&D expenses increased by 1.59% year on year, up 0.79 pcts year on year.
Benefiting from the increasing prosperity of the refrigerant industry, 1Q24 achieved high year-on-year profit growth. 2024 is the first year of implementation of third-generation refrigerant quotas. Excess production capacity was eliminated, and product prices returned to a reasonable range. According to the company's business data announcement for the first quarter of 2024, the average price of refrigerant in 1Q24 was 23,829.03 yuan/ton, up 8.47% year on year and 25.71% month on month. The recovery in refrigerant product prices and gross margin contributed to a recovery in the company's profit level.
Cash flow from the company's various activities declined. The net cash flow from the company's operating activities in 2023 was $484 million, down 23.05% year on year; net cash flow from investment activities was -715 million yuan, down 157.58% year on year; net cash flow from financing activities was -147 million yuan, down 560.46% year on year; and the balance of cash and equivalent at the end of the period was $3.122 billion, down 10.36% year on year.
Accounts receivable fell 24.67% year over year, and the accounts receivable turnover ratio increased, from 9.48 times in the same period in 2022 to 10.28 times; inventory fell 0.73% year over year, and the survival turnover rate declined, from 7.63 times in the same period in 2022 to 5.29 times.
With the implementation of third-generation refrigerant quotas, product prices are expected to rise. On November 6, 2023, the Ministry of Ecology and Environment officially promulgated the 2024 third-generation refrigerant quota plan. (1) The baseline value for HFCs production/use is the average production/usage amount for 2020-2022, plus 65% of the baseline value for production/use containing hydrochlorofluorocarbons (HCFCs), and the total production quota for HFCs production/import/ domestic use in 2024 is 18.52/0.06/898 million tons of CO2, respectively; (2) the enterprise's 2024 production quota, as verified by the Ministry of Ecology and Environment 2020- The 2022 production volume is the benchmark and distributed according to variety; (3) the 65% portion of the HCFCs baseline value will be distributed to production and use units in 2024; (4) production units can only adjust the HFCS quota for different varieties when applying for the 2024 quota, and the increase shall not exceed 10% of the enterprise's quota for that type. The tightening of the supply side of third-generation refrigerants has driven up the price of mainstream products. According to fluoride online data, as of May 9, the price of R32 was 29,000-33,000 yuan/ton, the price center was 13,500 yuan higher than the beginning of the year, the price of R125 was 42000-45,000 yuan/ton, the price center rose 15,500 yuan from the beginning of the year, and the price center rose 3,500 yuan from the beginning of the year. According to the company's 2023 annual report, the company's production quotas for HFC-134a, HFC-125, HFC-32, and HFC-143a were 51506 tons, 31,498 tons, 27779 tons, and 6285 tons respectively, accounting for 23.88%, 19.01%, 11.60%, and 13.81% of the country, respectively. We believe that with the tightening of the supply side of third-generation refrigerants, the prices of mainstream third-generation refrigerant products still have room to rise, which is beneficial to the company's fluorine refrigerant segment performance.
The company is transforming and upgrading in the direction of new fluorine-containing materials and continuously extending its own industrial chain. According to the company's 2023 annual report, the company focuses on developing HFCs refrigerants, foaming agents, fluoropolymers and fluorine fine chemicals, and has formed a production capacity and market base for fourth-generation refrigerants and foaming agent products through independent innovation and cooperative research and development, and has the technology and market competitiveness of some fluoropolymer products and fluorine fine chemicals.
The company will strengthen strategic planning, rely on the resource advantages, existing products, brands and capital advantages of the New Materials Industrial Park, take new fluorine-containing materials as the main direction, extend the fluorine chemical industry chain on the basis of the existing industrial layout, enrich the company's product structure, and promote industrial transformation and upgrading. By the end of 2023, the company had laid out projects such as the 3000 t/a (500 t/a) lithium bisfluorosulfonimide (LiFSI) project with an annual output of 3000 t/a (phase I), 5000 t/a polyperfluoroethylene propylene (FEP) and 5000 t/a polyvinylidene fluoride (PVDF) projects, 6000 t/a lithium hexafluorophosphate (LiPF6) and 100t/a high-purity phosphorus pentafluoride (PF5) projects, 1200t/a hexafluoroethane (R116) projects, and 20,000 t/a high-purity electronic grade hydrofluoric acid projects. According to the announcement of the company's partial fund-raising investment project, the company will advance the construction of the “Zhejiang Sanmei annual production line and plant construction project” and the “Zhejiang Sanmei R&D pilot construction project”. Among them, the pilot project will be used for the synthesis technology of the novel environmentally friendly refrigerant HFO-1234yf (2,3,3,3-tetrafluoropropene) and 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) Also, research on synthesis techniques for perfluorohexanone and hexafluoropropene dimers and trimers. We are optimistic about the continuous expansion of the company's industrial chain in the field of new fluorine-containing materials. The rich product matrix will further enhance the company's core competitiveness.
The company is steadily advancing project construction, and some projects are expected to be put into operation within the year. According to the company's 2023 annual report, the subsidiary Fujian Dongying AHF expansion project was completed, adding 90,000 tons of AHF production capacity. The Chongqing Xinchen R32 product filling project and Shengmei Lithium Battery Phase I 500t/a lithium bisfluorosulfonimide (LiFSi) project achieved trial production in one day. 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. According to the company's investor exchange minutes of April 30, 2024, the 6000t/a lithium hexafluorophosphate (LiPF6) project is expected to enter trial production in October 2024; the 5,000t/a polyperfluoroethylene propylene (FEP) and 5,000t/a polyvinylidene fluoride (PVDF) projects are expected to enter trial production around December 2024. We are optimistic about the implementation and completion of the company's main projects, and it is expected that the completion of the projects will contribute to the company's performance.
Investment advice: We expect the revenue of Sanmei shares in 2024-2026 to be 46.82/54.28/6.131 billion yuan respectively, up 40.4%/15.9%/12.9% year on year, net profit to mother of 6.95/9.61 billion yuan, up 148.4%/25.0% year on year, and corresponding EPS of 1.14/1.57/1.97 yuan respectively.
Combined with the company's closing price on May 27, the corresponding PE was 36/26/21 times, respectively. We are based on three aspects: 1) We believe that with the tightening of the third-generation refrigerant supply side, the prices of mainstream third-generation refrigerant products still have room to rise, which is beneficial to the company's fluorine refrigerant sector's performance. 2) We are optimistic about the continuous expansion of the company's industrial chain in the field of new fluorine-containing materials. The rich product matrix will further enhance the company's core competitiveness.
3) We are optimistic about the implementation and completion of the company's main projects. It is expected that the completion of the project will contribute to the increase in the company's performance and maintain the “buy” rating.
Risk warning: safety and environmental risk, risk of fluctuations in raw material prices, risk of cyclical industry fluctuations, risk of new product substitution, risk of production quota reduction, risk of foreign trade risk, risk of exchange rate fluctuations