Event: On April 26, 2024, Yonghe Co., Ltd. released its 2023 annual report. The company's revenue in 2023 was 4.369 billion yuan, up 14.86% year on year; net profit to mother was 184 million yuan, down 38.81% year on year; deducted non-net profit was 113 million yuan, down 57.82% year on year. The corresponding company's 4Q23 revenue was 1,140 million yuan, down 0.81% from the previous month; net profit to mother was 0.2 billion yuan, down 58.44% from the previous month.
On April 26, 2024, Yonghe Co., Ltd. released its 2024 quarterly report. The company's 1Q24 revenue was 1,012 million yuan, up 7.84% year on year, down 11.17% month on month; net profit to mother was 37 million yuan, up 27.38% year on year, up 72.11% month on month.
Comment: The decline in the average price of products led to a decline in profits, and the company's 2023 performance was under pressure in the short term. In 2023, the company's revenue of fluorocarbon chemicals/fluoropolymer materials/chemical raw materials was 23.58/13.47/546 billion yuan, YoY was -3.75%/+58.66%/+33.11%, respectively; gross margins were 7.75%/23.90%/6.79%, respectively, and year-on-year changes were -1.63/-13.96pcts, respectively. Although sales of most of the company's products have achieved steady growth, market prices for major products are running low, and the company's profits have declined. In 2023, the average sales price of the company's fluorocarbon chemicals/fluoropolymer materials/chemical raw materials was 2.08/4.90/ 0.26 million yuan/ton, respectively, and YoY was -18.92%/-39.72%/-37.99%, respectively. In terms of sales, sales of major products all showed an upward trend. In 2023, the company's sales volume of fluorocarbon chemicals/fluoropolymer materials/chemical raw materials was 11.35/2.75/21,400 tons, respectively, and YoY was 18.71%/163.20%/114.67%, respectively. The company's sales expenses increased 23.68% year on year, the sales expense ratio was 1.62%, up 0.12 pcts year on year; financial expenses rose 1216.29% year on year, financial expenses rate was 1.17%, up 1.07 pcts year on year; management expenses decreased 11.48% year on year, management expenses rate was 5.96%, down 0.18 pcts year on year; R&D expenses increased 73.17% year on year, and R&D expenses increased 2.07% year on year, up 0.70 pcts year on year.
Benefiting from the increasing prosperity of the refrigerant industry, 1Q24's profit achieved high year-on-year 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 January-March 2024 business data announcement, the average price of fluorocarbon chemicals in 1Q24 was 230,96.95 yuan/ton, up 8.12% year on year and 5.36% month on month. The recovery in the price of fluorocarbon chemicals and gross margin has boosted the recovery of the company's profit level.
There is some fluctuation in the cash flow generated by the company's various activities. The company's net cash flow from operating activities in 2023 was $524 million, up 18.54% year on year; net cash flow from investment activities was -1,443 million yuan, up 7.35% year on year; net cash flow from financing activities was 880 million yuan, down 25.55% year on year; and the balance of cash and equivalent at the end of the period was 146 million yuan, down 15.46% year on year.
Accounts receivable increased 6.09% year over year, and accounts receivable turnover increased, from 11.62 times in the same period in 2022 to 12.26 times; inventory increased 32.05% year over year, and inventory turnover decreased, from 6.47 times in the same period in 2022 to 6.26 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 2024 third-generation refrigerant quota distribution schedule, the company received a total production quota of 55,200 tons of third-generation refrigerants, including 5770 tons of HFC-32 quota, 10,860 tons of HFC-134a quota, 6380 tons of HFC-125 quota, 14374 tons of HFC-143a quota, and 10,638 tons of HFC-152a quota.
We believe that with the tightening of the supply side of third-generation refrigerants, there is still room for an increase in the prices of mainstream third-generation refrigerant products, which is beneficial to the company's fluorine refrigerant segment performance.
The company actively invests in R&D and lays out the fields of fluoropolymer materials and fourth-generation refrigerants. According to the company's 2023 annual report, the company invested 90.2345 million yuan in R&D in 2023, an increase of 73.18% over the previous year. The company has successfully industrialized PPVE and HFPO, and has carried out development of hexafluoropropane oligomers and derivatives, synthesis of catalytic monomers, research on fourth-generation refrigerants, PVDF development, and development of mixed environmentally friendly refrigerants. In 2023, the company added 5 new authorized patents, including 4 invention patents and 1 utility model. We are optimistic about the company's continued investment in fluorinated polymer materials, and we believe that the company's competitiveness in fluoropolymer materials is expected to be further strengthened.
The company actively promoted project construction, and many projects were successfully put into operation in 2023. According to the company's 2023 annual report, Shao Wuyong successfully began trial production of 10,000 tons/year HFP of the fluorine chemical production base project in January 2023, 0.75 million tons/year FEP and 10,000 tons/year PTFE were successfully put into trial production in April 2023, 50,000 tons/year PVDF and 0.05 million tons/year PPVE were successfully put into trial production in September 2023, and 30,000 tons/year methylene chloride was successfully put into trial production in November 2023, and 30,000 tons/year HFPO Trial production was successfully put into operation in December 2023; the 70,000 tons/year VDF of the Yongxin Construction Project in Inner Mongolia was successfully put into trial production in May 2023. In the long run, the company's production capacity mainly includes 80,000 tons/year of hydrofluoric acid, more than 40,000 tons/year of fluorinated polymer materials, and 43,000 tons/year of fourth-generation refrigerants. Among them, after the completion of the “Baotou Yonghe New Energy Materials Industrial Park Project”, it will form 400,000 tons/year of caustic soda, 240,000 tons/year of methane chloride, 48,000 tons/year of HFP, HFO-1234yf 20,000 tons/year, HFO-1234Ze 13,000 tons/year Perfluorohexanone 10,000 tons/year, 1 Production capacity of 180,000 tons/year of methylene chloride, 250,000 tons/year of calcium chloride, 40,000 tons/year of perchloroethylene, and 60,000 tons/year of vinyl chloride. 1. We are optimistic about the implementation and completion of the company's main projects, and it is expected that the company's position in the fluorine chemical industry will be further strengthened.
Investment advice: We expect Yonghe Stock's revenue for 2024-2026 to be $52.93/60.26/6.556 billion yuan, up 21.2%/13.8%/8.8% year on year, net profit to mother of 5.02/7.06/1,020 billion yuan respectively, up 173.2%/40.6%/44.5% year on year, corresponding EPS of 1.32/1.86/2.68 yuan respectively.
Combined with the company's closing price on May 31, the corresponding PE was 18/13/10 times, respectively. We are based on the following three aspects: 1) 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 sector's performance. 2) We are optimistic about the company's continued investment in fluorinated polymer materials. We believe that the company's competitiveness in fluoropolymer materials is expected to be further strengthened. 3) We are optimistic about the implementation and completion of the company's main projects. It is expected that the company's position in the fluorine chemical industry will be further strengthened to maintain a “buy” rating.
Risk warning: risk of cyclical fluctuations in the industry, risk of rising prices of important raw materials, risk of technology development and replacement of new products, risk of industrial policy adjustment, risk of international export business, risk of safety and environmental protection