Jinhong Gas: Comprehensive gas service provider, electronic bulk on-site gas business to build the company's new growth Jijinhong Gas as a comprehensive gas service provider. Currently, it is vigorously developing the electronic bulk on-site gas production business, and there is plenty of room for future development. Referring to the company's 2023 annual report guidelines, we maintain the company's performance expectations. The net profit due to mother for 2024-2026 is 0.405/0.506/0.625 billion yuan, EPS is 0.83/1.04/1.28 yuan, and the corresponding PE price is 21.4/17.2/13.9 times. Maintain a “buy” rating.

Electronic bulk gas: A key material for pan-semiconductor manufacturing. The market space is broad. Electronic bulk gases mainly refer to high-purity and ultra-high-purity bulk gases that meet the requirements of the electronic semiconductor field, mainly including nitrogen, helium, oxygen, hydrogen, argon, and carbon dioxide. It is an indispensable key material for the pan-semiconductor industry. Electronic bulk gas manufacturers generally use a production and marketing model combining on-site gas generation and retail gas supply. Among them, the on-site gas production model is more in line with the large-scale production needs of the semiconductor industry due to its large scale, strong stability, and high cost efficiency. In terms of market space, according to data from Zhuochuang News, China's electronic bulk gas market is 9.5 billion yuan in 2022, and is expected to reach 12.2 billion yuan in 2025, with a CAGR of 8.70% in 3 years.

Demand side: There is extensive downstream demand for electronics, and the semiconductor sector has broad long-term space for three-wheel drive. In the long run, benefiting from the continuous growth of equipment investment and capacity expansion in the wafer manufacturing industry, there is broad scope for incremental electronics demand. According to data from the Core Research Institute, production capacity for 12-inch and 8-inch wafers in mainland China is expected to be +2.19% and +23.89%, respectively, compared to the same period in 2023. In the short term, inventory removal in the semiconductor industry is progressing steadily. Domestically, the average inventory value in the 2023Q4 semiconductor materials sector dropped significantly compared to 2023Q3. In the panel sector, production capacity for new displays represented by OLEDs is growing rapidly, and technological iterations have brought about an increase in demand for electronics. In the photovoltaic sector, demand is mainly driven by a high increase in new installed capacity.

Supply side: The four major foreign investors have a long-term monopoly. The domestic replacement window period has arrived. Due to high barriers to entry into the industry, the global electronics market shows an oligopoly pattern. The four major companies represented by American Air Chemical, German Linde Gas, French Liquefied Air, and Japan's Taiyo Nippon Sanso account for 70% of the global share. We believe that in the context of policy promotion and expansion of downstream demand, domestic companies represented by Guangzhou Steel Gas and Jinhong Gas are speeding up to break monopolies and seize market share, and the domestic production replacement window has arrived.

Risk warning: downstream demand falls short of expectations; domestic substitution falls short of expectations; order delivery falls short of expectations.