Key investment points

Acquisition of Yingde: The transaction plan was changed, and the indirect controlling shareholder Hangzhou Capital was changed to a non-largest shareholder participating 1) Original transaction plan: Hangzhou Capital plans to become the largest shareholder of the buyer SPV1 and acquire 100% of Zhejiang Yingde's shares. It also promised to push Hangshi Co., Ltd. to sign an asset restructuring agreement with SPV1 within 36 months of completing the transaction. As of November 21, 2024, the buyer's SPV1 had been established but not invested, and was not actually in operation due to the delivery prerequisites agreed in the “Share Sale and Purchase (Master) Agreement” not being met before the deadline.

2) New transaction plan: The seller and several investors signed separate transaction agreements to jointly invest in the establishment of “Buyer SPV2” and acquire 100% of the target company's shares. Hangzhou Industrial Investment, a wholly-owned subsidiary of Hangzhou Capital, plans to co-invest in Hangzhou Hangmeng as an LP with other investors. Hangzhou Hangmeng's investment ratio in the buyer's SPV2 is 19.55%. It is not the buyer's largest shareholder in SPV2, has no directors' seat, and does not enjoy the decision-making and management rights of the target company.

3) PAG plans to sell the gas business for 6.8 billion US dollars: According to Bloomberg's November 21, Hong Kong private equity investment company TaiMeng Investment Group (PAG) agreed to sell the industrial gas business of AirPowerTechnologies Ltd. (AirPowerTechnologies Ltd.) to a Chinese consortium for 6.8 billion US dollars.

The company's growth path: demand growth+increased market share+increased profitability, with long-term profit margin exceeding several times (1) Industry demand continues to grow: 1) Total demand in the industrial gas market is nearly 200 billion yuan, with the third-party outsourcing market growing rapidly. The outsourcing ratio is expected to increase from 41% in 2021 to 45% in 2025. 2) In 2021, the size of China's industrial gas market increased by 10% year-on-year, and China's per capita gas consumption accounted for 30-40% of developed countries such as Western Europe and the United States. China's industrial gas market is expected to grow at a compound rate of 6-8% by 2025.

(2) Increased company market share: Under the domestic substitution trend, the company's stock share in the third-party gas supply market in 2021 was 9%, and the incremental share was 45%. It is expected that the share of future companies in the third-party gas supply market will be 3-4 times that of 2021 (30-40% market share).

(3) The company's product structure has been upgraded, and profitability continues to increase: 1) The gas business's share of revenue continues to increase, and the growth and profitability of the gas business is higher than that of the equipment business. 2) The share of retail revenue in the gas business continues to rise, and the profitability of retail gas is higher than that of pipeline gas. 3) The share of electronic gas revenue in the retail gas business will continue to increase, and the profitability of the electronic specialty gas business is higher than that of ordinary industrial gas retail business.

Profit forecasts and investment advice

The company's net profit for 2024-2026 is expected to be 1.03, 1.34, and 1.62 billion yuan, respectively, with year-on-year growth rates of -15%, 30%, and 21%, respectively, and corresponding PE 24, 18, and 15 times, respectively. Maintain a “buy” rating.

Risk warning

Controlling shareholder transaction uncertainty risk, industry competition risk and market risk, gas price fluctuation risk.