Matters:

Company announcement: On July 22, 2024, the company issued an announcement. Recently, Shanghai Jinhong, a holding subsidiary of the company, and Yunnan Qujing Chenggang (Group) Co., Ltd. signed an “Industrial Gas Supply Contract” to supply each other with industrial gas products — oxygen, nitrogen and argon — through the acquisition and transformation of 3 sets of oxygen devices and backup systems. According to contract estimates, the contract amount is approximately RMB 2.34 billion (excluding tax), subject to actual conditions. This contract is the company's daily operating contract, and the company has completed the internal approval procedure for signing the contract. According to the relevant provisions of the “Shanghai Stock Exchange Science and Technology Innovation Board Stock Listing Rules” and “Jinhong Gas Co., Ltd. Articles of Association”, etc., there is no need for review and approval by the company's board of directors or shareholders' meeting.

Guoxin Petrochemical's opinion: 1) The company has successively won medium and large-scale on-site gas production business orders, further improving business stability; 2) The company's 2023 share repurchase plan has been implemented, and the repurchase shares will be used for employee stock ownership plans or equity incentives, showing confidence in the company's future development; 3) The company plans to distribute mid-2024 dividends, the total amount of which will be no less than 40% of net profit due to mother for the first half year of 2024, and the investor return level will increase. Based on the characteristics of high barriers to electronic specialty gas certification, the company's core products will maintain a competitive advantage for clients for a long period of time, and with the rolling launch of the company's new products, the company's product structure will continue to be optimized, and there is still room for continuous optimization of gross margin. As the company gradually receives orders for medium and large-scale on-site gas production projects, the company's revenue and profit stability will be further enhanced. We maintain our forecast of the company's 2024-2026 net profit of 0.401/0.497/0.614 billion yuan. The current stock price corresponds to PE of 23/18/15X, respectively, maintaining a “superior to the market” rating.

Commentary:

The company has successively received orders for medium and large-scale on-site gas production services, and business stability was further improved. In June 2023, the company established a large industrial division to develop medium and large-scale on-site gas production businesses. In August 2023, the company acquired Jishan Mingfu Gas Co., Ltd. and obtained 3 sets of air separation plant sites in Yuncheng City, Shanxi Province, to achieve a breakthrough in the medium-sized on-site gas generation (air division group) project. On March 22, 2024, the company signed an “Investment and Supply Contract” with Yingkou Jianfa Shenghai Nonferrous Chemical Co., Ltd. to supply oxygen and nitrogen to customers through the construction of a new 66,000 nm/h air separation unit. According to contract estimates, the contract amount is approximately RMB 2.4 billion (excluding tax). The gas supply is expected to begin in August 2025, and the contract period is 20 years. On May 22, 2024, the company signed a “gas supply contract” with Shandong Ruilin Polymer Materials Co., Ltd. to supply industrial gas products — oxygen and nitrogen — to each other through the construction of a 23,000 nm/h air separation device and ancillary facilities.

According to contract estimates, the contract amount is approximately RMB 1.86 billion (excluding tax), and the contract period is 20 years. On July 22, 2024, the company issued an announcement. Recently, the holding subsidiary Shanghai Jinhong and Yunnan Qujing Chenggang Steel (Group) Co., Ltd. signed an “Industrial Gas Supply Contract” to supply each other with industrial gas products — oxygen, nitrogen and argon — through the acquisition and transformation of 3 oxygen devices and backup systems. According to contract estimates, the contract amount is approximately RMB 2.34 billion (excluding tax), and the contract execution period is 15 years, subject to actual conditions.

According to estimates, the three latest on-site gas production orders in 2024 will generate 0.369 billion yuan of revenue for the company every year. After the steady operation of all of the company's medium and large-scale on-site gas production businesses, it is expected to generate revenue of about 0.621 billion yuan for the company. As the company's large-scale on-site gas production orders increase, the company's revenue and profit certainty will further increase.

The company's 2023 share repurchase plan has been implemented. The repurchased shares will be used for employee stock ownership plans or equity incentives, demonstrating confidence in the company's future development

On November 8, 2023, the company held the 22nd meeting of the 5th board of directors to review and pass the “Proposal on the Plan to Repurchase the Company's Shares through Centralized Auction Transactions”, agreeing that the company would use its own funds to repurchase some RMB common shares (A shares) already issued by the company through centralized bidding transactions through the Shanghai Stock Exchange trading system. All of the shares repurchased will be used for employee stock ownership plans or equity incentives, and will be transferred within 3 years after the share repurchase implementation results and share change announcement; if the shares repurchased by the company fail to be transferred within 3 years after the share repurchase implementation results and share change announcement, the procedures to reduce the registered capital will be carried out in accordance with law, and the untransferred shares will be cancelled. The repurchase price is not more than RMB 30 per share (inclusive), the total repurchase capital is not less than RMB 30 million (inclusive), and not more than RMB 50 million (inclusive). The repurchase period is within 12 months from the date the board of directors of the company reviews and approves the repurchase plan. As of July 22, 2024, the company's share repurchase plan has been completed. The company has repurchased a total of 2364,249 shares through centralized bidding transactions, accounting for 0.48% of the company's total share capital. The highest repurchase price is 24.48 yuan/share, the lowest price is 16.32 yuan/share, the average repurchase price is 20.97 yuan/share, and the total amount paid is 4957,3443.79 yuan (excluding transaction fees such as stamp duty and transaction commissions). This share repurchase shows confidence in the company's future long-term development; in addition, all of the shares will be used for employee stock ownership plans and equity incentives, which will help the company to promote equity incentives on a rolling basis, enhance employees' motivation to work, and achieve continuous growth in the company's performance.

The company plans to distribute dividends for the mid-year 2024. The total amount will be no less than 40% of the net profit attributable to the mother for the 2024 half-year period. The company plans to combine undistributed profit with current results in mid-2024. The total share capital registered on the company's future equity distribution share registration date is deducted from the shares in the company's special securities account, and the total amount of cash dividends distributed to all shareholders is not less than 40% of the net profit attributable to shareholders of the listed company according to the 2024 semi-annual consolidation and no more than 40% of the net profit of shareholders of the listed company. 60% of profits will not be transferred from capital reserves to increase share capital, and no bonus shares will be given.

Investment advice:

Maintain an “better than market” rating. Based on the characteristics of high barriers to electronic specialty gas certification, the company's core products will maintain a competitive advantage for a long period of time, and with the rolling launch of the company's new products, the company's product structure will continue to be optimized, and there is still room for continuous optimization of gross margin. As the company gradually receives orders for medium and large-scale on-site gas production projects, the company's revenue and profit stability will be further enhanced. We maintain our forecast of the company's 2024-2026 net profit of 0.401/0.497/0.614 billion yuan. The current stock price corresponds to PE of 23/18/15X, respectively, maintaining a “superior to the market” rating.

Risk warning

The risk of falling prices of main products; the risk that the commissioning progress of on-site gas production projects falls short of expectations; the risk that the production progress of new electronic special gas products falls short of expectations.