Matters:

The company released its 2024 semi-annual report. 24H1 achieved total revenue of 1.232 billion yuan, yoy +8.65%; realized net profit of 0.16 billion yuan, yoy -1.15%; and deducted non-net profit of 0.122 billion yuan, yoy -15.15%. 2024 mid-term profit distribution plan: cash dividend of 1.5 yuan (tax included) for every 10 shares.

Ping An's point of view:

Overall production and sales of bulk gas and specialty gas continued to grow, and gross margin declined due to price cuts for core products. 24H1's specialty gas business revenue was 0.509 billion yuan, yoy +3.0%, accounting for 42.80% of the main business revenue. The gross margin was 31.55%, down 8.8 pct from 2023. Since this year, competition in the PV industry chain supply has increased, and the company's high-purity ammonia products are under certain price reduction pressure, which has led to a decrease in gross margin; 24H1 bulk gas business revenue is 0.443 billion yuan, yoy +7.0%, accounting for 37.24%, down from 2023. 2.2 pct. The price of products used in the semiconductor industry is relatively strong. The company continues to increase its semiconductor customer development efforts. 12 new semiconductor customers have been introduced this year: the superior products ultra-pure ammonia and high-purity nitrous oxide have been officially supplied to SMIC, Hynix, Changxin Storage, etc.; production of new electronic grade ethyl orthosilicate and high-purity carbon dioxide has been achieved in batch supply to some customers such as Changxin Storage, Lianxin, Suzhou and Shipping; 7 products are under construction - perfluorobutadiene, monofluorobutane, octafluorocyclobutane, dichlorodihydrogen silicon, hexachlorosilane, ethylene chloride, ethylene silane, Trimethylsilamine is in the process of industrialization.

Continue to operate steadily, and plan to increase shareholder returns with mid-term dividends. In order to actively implement the company's 2024 “Improve Quality, Efficiency, and Heavy Return” action plan and raise the level of investor returns, the company plans to pay mid-2024 dividends. The total planned dividend is 0.072 billion yuan, accounting for 44.94% of the net profit attributable to shareholders of listed companies for the period, and a cash dividend of 1.5 yuan (tax included) for every 10 shares.

Continued efforts to develop on-site gas production projects are expected to provide stable incremental results. 24H1's on-site gas production and rental business revenue was 0.132 billion yuan, accounting for 11.09% of the main business revenue. The gross margin was 64.36%, an increase of 4.5 pcts over 2023. This year, the company signed 4 new small-scale on-site gas production projects and put into operation 2 projects suitable for the company: in March 2024, it obtained a single 0.07 million grade air separation gas supply project from Yingkou C&D for the non-ferrous smelting industry; in May 2024, it obtained Shandong Ruilin polymer 0.03 million grade air separation gas supply project for the refining/petrochemical industry; in June 2024, the 3 air separation cooperation projects of Jishan Mingfu Steel were officially put into operation; in July 2024, it was officially put into operation to acquire gas transfer The (decap) method obtained 3 air separation gas supply projects of Yunnan Chenggang Group for steel production.

The reason for the significant increase in financial expenses: the issuance of convertible bonds in July 2023 led to an increase in interest costs on bonds. 2024H1's financial expenses were 15.2745 million yuan, up 69.81% from the same period last year, and the financial expense ratio was 1.24%, up 0.45 pct from the same period last year, and the balance ratio was 49.36%, up 12.44 pcts from the same period last year. The main reason was that the company issued convertible bonds in July 2023, and interest expenses on bonds increased.

Investment suggestions: Core products such as ultra-pure ammonia, high-purity nitrous oxide, carbon dioxide and other products have been released, and various new products such as high-purity carbon dioxide, electronic-grade TEOS, hexafluorobutadiene, etc. have gradually achieved batch supply. At the same time, with the successive implementation of on-site gas generation and electronic bulk gas projects, the company's overall performance is expected to show strong resilience. However, due to intense industrial competition and the decline in overall market prices of chemical gas products this year, the price and gross margin of the company's bulk gas products have declined., therefore, the performance was lowered It is expected that in 2024-2026, the company will achieve net profit of 0.364, 0.465, and 0.587 billion yuan (down from the original forecast of 0.394, 0.496, and 0.62 billion yuan), corresponding to PE 23.1, 18.0, and 14.3 times respectively on August 21, 2024. Currently, product prices have stabilized, and there is limited room for downside. Subsequent batch supply of the company's new specialty gas products and on-site gas production projects are expected to bring incremental revenue and maintain the “recommended” rating.

Risk warning: 1) The growth rate of terminal demand falls short of expectations. If the upward cycle of the semiconductor and display panel industry starts late, demand in the photovoltaic cell industry declines, and demand for terminals falls short of expectations, it will be difficult to release the company's electronic special gas business demand, and the growth rate of performance may be limited. 2) Overseas companies have greatly expanded production. If large overseas companies increase the scale of specialty gas production capacity and squeeze out the Chinese specialty gas market with scale and technical advantages, it may cause a surge in competition for some specialty gas products and overcapacity. 3) The risk that technological breakthroughs will be blocked. If overseas exports of related technology are strictly restricted, it is difficult for domestic enterprises to break through R&D and industrial mass production of high-barrier high-purity specialty gas products in the short term, which may cause the domestic production substitution process to be blocked and delayed. 4) The risk of large fluctuations in raw material prices. If raw material air separation and energy prices are affected by factors such as extreme climate and overseas geopolitics, and the supply and demand pattern changes greatly, prices may fluctuate greatly, causing the company's production costs to rise.