Investment highlights:
Electronic bulk gas faucets, and the gas supply to the project one after another is driving a high increase in revenue. Since its establishment in 1969, the company has always focused on the field of industrial gases. It switched from general industrial gas business to electronic bulk gas in 2018, and acquired Linde's helium business in 2020. Since then, it has formed a product matrix covering nitrogen, helium, oxygen, hydrogen, argon and carbon dioxide, and is sold to downstream customers through two models of on-site gas generation and retail gas supply. As new electronic bulk gas projects were put into operation one after another, the company's revenue remained high, reaching a CAGR of 28.4% in 2020-2023; profits fluctuated slightly due to helium prices, and gross margin and net margin in 2023 were 35.1%/17.4% (Yoy-3.2pct/+2.0pct), respectively.
The stock market in the electronic bulk gas industry is monopolized by foreign investors, and the process of replacing domestic products in new markets is being accelerated. Electronic bulk gases mainly include the six major types of nitrogen, helium, oxygen, argon, hydrogen, and carbon dioxide. Among them, nitrogen is used the largest throughout the semiconductor process; the application of helium in the field of electronic semiconductors continues to increase due to its chemical stability and good permeability. Established foreign gas companies represented by Linde, Air Liquide, and Air Chemical monopolize the stock market with medium and large-scale ultra-high purity nitrogen production processes and first-hand helium sources; domestic gas companies, represented by Guangzhou Steel Gas, are actively expanding new markets based on technological breakthroughs.
In 2023, liquid air (24.8%), Guangzhou Steel (24.6%), Linde (24.0%), and air chemicals (14.4%) accounted for the top four projects in the domestic integrated circuit manufacturing and semiconductor display fields, according to the production capacity of the winning bid.
The helium supply chain has gradually become autonomous and controllable, and the position of the largest domestic helium supplier is stable.
The company obtained the divestment of helium resources required by the national antitrust when Linde Gas and Plex merged in December 2019, as well as corresponding customer relationships and auxiliary support services. The expected benefit period is 2020-2041, making the company the first domestic gas supplier in China to directly participate in the global helium supply chain. This cooperation agreement is essentially a right to enter the global helium market. The company carries out related procurement business on this basis, and has now independently signed cooperation agreements with several upstream gas source manufacturers. In 2023, the company accounted for 10.1% of the country's helium imports, followed by Linde (21.4%), Liquid Air (20.3%), Air Chemical (17.7%), and Japan's Iwatani (13.8%).
The domestic exclusive ultra-high purity nitrogen production process helps the company benefit from the domestic replacement process for electronic bulk gas. The company developed its own ultra-high purity nitrogen generator Super-N. The maximum design gas supply scale is 37,000 Nm3/h, but it can meet the needs of most domestic integrated circuit manufacturing industries.
Super-N has the ability to replace equipment from foreign-funded gas companies. Combined with first-hand helium resources, it helped Guangzhou Steel to account for 23.9%/24.6% of the new electronic bulk bid production capacity in September 2018-2022 and 2023, respectively, ranking second.
Profit forecasting and investment rating companies have formed autonomous and controllable technical capabilities around the ultra-high purity nitrogen production and helium supply chain. The barriers are high. Future marginal improvements come from 1) helium prices bottoming out; 2) demand recovery in downstream integrated circuit manufacturing and semiconductor displays; 3) expansion of downstream application scenarios. Considering the large fluctuations in the price of helium, we adjusted our revenue forecast for 2024/2025/2026 to be 22.39/27.03/3.12 billion yuan, and net profit to mother was 3.54/4.25/511 million yuan, corresponding PE was 37/31/25 times, respectively. We are optimistic about the company's long-term future development and maintain the “gain” rating.
Risks indicate the risk of a sharp drop in helium prices, a decline in gross margin, a decline in gas source production, an increase in electricity prices, a risk that the scale of new projects falls short of expectations, and the risk of deteriorating customer performance.