Core views
Dongyue Group achieved revenue of 14.493 billion yuan in 2023, a year-on-year decrease of 27.63%; realized net profit to mother of 708 million yuan, a year-on-year decrease of 81.64%. The boom in second-generation refrigerants is rising, prices for major products such as R22 and R32 continue to rise, and the company's profit is expected to increase; the company focuses on technological innovation to reduce costs and increase efficiency, lay out high-end fine chemicals research and development, and strengthen comprehensive utilization of by-products; Xinhualian's equity repurchase and cancellation was completed, and the founder of the company became the largest shareholder, which is conducive to maintaining the company's shareholding structure and daily business stability.
occurrences
The company released its 2023 annual report: achieved revenue of 14.493 billion yuan in 2023, a year-on-year decrease of 27.63%; realized net profit of 708 million yuan, a year-on-year decrease of 81.64%.
Brief review
Prices of products such as PVDF and R142b fell, and the 23-year performance was pressured to achieve revenue of 14.493 billion yuan in 2023, a year-on-year decrease of 27.63%; net profit to mother was 708 million yuan, a year-on-year decrease of 81.64%.
By product sector, in 2023, the company achieved revenue of 45.52/48.62/28.72/28.72/1,177 billion yuan respectively, with year-on-year changes of -29.82%/-26.86%/-34.15%/-27.57%; achieved operating profit margins of 7.40%/-6.80%/10.82%/21.10%, with year-on-year changes of -23.27/-13.77/ -12.6/-7.23pct, due to the supply capacity of some products The increase led to a drop in the prices of some products. Among them, the main reason for the decline in the fluorinated polymer materials sector and refrigerants was the sharp drop in PVDF product prices; the refrigerant sector was mainly affected by the fall in R142b prices.
Prices for major products such as R22 and R32 have continued to rise. The company's profit is expected to be reduced to the middle and late stages of second-generation refrigerant quota and the beginning of quota management for third-generation agents. In the week ending May 26, the average price of R22/R125/R32 was 3.0/3.9/36,000 yuan/ton, respectively, up 46%/41%/100% from the beginning of the year; in addition, the total amount of R22 quotas in '24 was 180,000 tons, down 59% from '13, and maintaining a tight balance between supply and demand; according to the process, the balance between market supply and demand was maintained. 67.5%, or 97.5% after 30 years, almost eliminated. According to Zhuochuang, the 25-year quota is estimated to be 149,000 tons, a further reduction of 17% from '24. Compared with hard cuts on the supply side, there is still a certain amount of flexible demand release on the downstream demand side, which in turn supports prices to remain high during the year. At the same time, the R22 domestic and foreign trade price gap gradually narrows. In anticipation of further quota cuts in 25, there is still plenty of room for subsequent price increases.
The company's corresponding quotas for R22/R32/R125 are 5.4/47/15,000 tons, respectively, and the industry accounts for 30%/20%/9%, respectively. It is the enterprise with the highest R22 quota, which will fully benefit from the increase in product prices.
Xinhualian's share repurchase and cancellation was completed, and the founder became the largest shareholder
In October '23, in order to reduce the adverse effects of Xinhualian's judicial restructuring, the company signed a share repurchase agreement with Xinhualian to repurchase a total of 23% of Dongyue Group shares held by Xinhualian. As of May 3, '24, the corresponding shares had been repurchased and cancelled, and the founder of the company became the largest shareholder, which is conducive to maintaining the company's shareholding structure and daily business stability.
Focus on technological innovation to reduce the company's costs and increase efficiency
In 2023, the company added 101 new brand products, and a large number of new high-end material products entered the market sample or small-batch supply stage, laying a good foundation for the company to enhance the height and competitiveness of the industry; completed 148 new renovation and expansion, energy saving and emission reduction, automation improvement, and quality improvement projects. Technological innovation also promoted the company's cost reduction and efficiency; 81 new authorized patents were added, currently 620 authorized patents; 22 standards were issued, including 2 national standards, 2 industry standards, 1 local standard, and 17 group standards. Currently, the company It has hosted the publication of 127 standards of various types. The company spent about RMB 9.35 on R&D in '23, accounting for 6.45% of revenue.
Profit forecast and valuation: The company's net profit for 2024, 2025, and 2026 is estimated to be 16.2, 21.15, and 24.1 billion yuan, respectively; EPS is 0.94 yuan, 1.24 yuan, and 1.39 yuan respectively; the corresponding PE is 8.8, 6.7X and 6.0 X, respectively.
Risk warning: (1) Risk of cyclical fluctuations in the industry: Affected by many factors such as upstream raw material supply, downstream product market demand, product production capacity, and environmental protection policies, the fluorine chemical industry has experienced obvious cyclical changes in recent years. If the industry declines in the future due to cyclical fluctuations in the industry, the company's future profitability may be affected. (2) Risks of rising prices of important raw materials: In anticipation of carbon peaks and carbon neutrality policies, it is not ruled out that China will further introduce policies to reduce resource and energy consumption, compounding the intensification of geopolitical risks, triggering an increase in raw material and energy prices, thus having a certain impact on the company's business performance. (3) Technology development and new product substitution risk: If the company fails to keep up with the industry in product technology development when developing in the direction of scale, refinement, and serialization in the future, or if the company's fourth-generation refrigerant construction progress falls short of expectations or other alternative products appear, it may adversely affect the company's performance. (4) Industrial policy adjustment risk: The company is mainly engaged in the production and sale of fluorine chemical products, and changes in national industrial policy will affect the company's production and operation. If China adjusts its HFCs reduction plan in the future, it may adversely affect the company's production and operation.