Description of the event

On the evening of June 21, Haohua Technology issued an announcement that the company issued shares to purchase assets and raised supporting capital and related transactions to obtain registration approval from the China Securities Regulatory Commission, and also disclosed the report on issuing shares to purchase assets and raise supporting capital and related transactions.

It is proposed to issue shares to purchase 100% of Sinochem Blue Sky's shares and support capital raising. The fluorine chemical sector complements the industrial chain

On August 15, 2023, Haohua Technology plans to issue shares with Sinochem Group and Sinochem Asset to acquire Sinochem Blue Sky and raise supporting capital to expand production of fluorine chemical products. On March 27, 2024, the matter was reviewed and approved by the merger, acquisition and restructuring review committee of the Shanghai Stock Exchange. On June 21, 2024, the issuance of shares to purchase assets and raise supporting capital and related transactions obtained registration approval from the China Securities Regulatory Commission. According to the newly disclosed transaction report, Haohua Technology plans to issue shares from Sinochem Group to purchase 52.81% of its shares and purchase 47.19% of Sinochem Blue Sky shares from Sinochem Asset. The specific transaction price is about 7.244 billion yuan (issue price 36.72 yuan/share); at the same time, Haohua Technology plans to raise supporting capital from no more than 35 eligible investors, including foreign trade trusts and Sinochem Capital Venture Capital, with no more than 4.5 supporting capital raised The main investment in billion yuan includes the construction of a 0.02 million tons/year PVdF project, a 0.2 million ton/year lithium-ion battery electrolyte project (phase I), a new 1,000 ton/year perfluoroolefin project, and a new 0.15 million ton/year lithium-ion battery electrolyte project (phase I), etc., which helps the company strengthen the chain in the fluorine chemical and fluorine gas sectors. Among them, the lithium battery industry chain has been clearly strengthened.

Sinochem Blue Sky is originally a fluorine chemical enterprise under the China Sinochem Group. It is mainly engaged in R&D, production and sales of fluorine chemical products such as fluorine-containing lithium battery materials, fluorocarbon chemicals, fluoropolymers, and fluorine fine chemicals. It has a full industry chain from fluorite resources to HF to fluorocarbon chemicals/fluoropolymers and fluorine refining, and has plans to expand production of R134a, R125, CTFE, PVDF, PVF, and trifluoroacetic acid. PTFE high-end fluoropolymers and fluoropolymers, neutralizing blue sky The fluorine chemical sector with Haohua Technology can form a good industrial chain of complementarity and collaboration. After the implementation of this restructuring, the integration of the two fluorine chemical companies under the two modernizations deepened, and Haohua Technology's revenue and profit level will reach a new level.

Investment advice

We believe that the company has a rich R&D heritage and has become an obvious platform materials company driven by R&D innovation. It chose a track to continue to grow at a high level, while focusing on high-end and differentiation. The product structure continues to be optimized and cyclical. The company's capital expenditure accelerated during the “14th Five-Year Plan” period, and the company entered a period of rapid growth. Key new projects include the 0.026 million tons/year high-performance organic fluorine material project (including 0.0185 million tons of high-end PTFE resin), the Southwest Electronics Special Gas Project, and the Limingyuan Withdrawal Project. Intensive capital expenditure increases continue to drive the company's profit growth.

We expect Haohua Technology's net profit for 2024-2026 to be 0.96, 1.237, and 1.308 billion yuan (2024-2025 original value of 1.273 and 1.674 billion yuan, based on prudential principles, has not yet been considered in Sinochem Blue Sky's merger report, and has not yet considered this fundraising project), EPS 1.05/1.36/1.44 yuan, and the corresponding PE is 28.60X/22.19X/20.98X. Maintain a buy rating.

Risk warning

(1) Risks caused by price fluctuations of raw materials and major products; (2) production safety risks; (3) environmental protection risks;

(4) Project commissioning progress falls short of expectations;

(5) Equity incentives fell short of expectations.