Incident description

On December 6, 2024, the company issued an announcement on the “Acquisition of 100% Shares in Xuyang Research Institute”. Xuyang Group (as the buyer), a wholly-owned subsidiary of the company, and Xuyang Holdings (as the seller) signed an equity transfer agreement on December 6, 2024. Xuyang Group acquired 100% of Xuyang Research Institute's shares from Xuyang Holdings at a purchase price of RMB 0.181 billion.

Event reviews

Acquired Xuyang Research Institute to create a world-class group headquarters benchmark. The company established its headquarters in Beijing's Xuyang Building 1 in 2002. The main asset of Xuyang Research Institute is the Xuyang Building. This acquisition will help the Group maintain the continuity and stability of its headquarters as a listed company, strengthen the management of its Beijing headquarters, and reduce some related transactions. In the future, in addition to using the Xuyang Building as its headquarters, the rest of the company will be used to invest in properties. Judging from the geographical location and floor area of the Xuyang Building, there is sufficient potential for capital appreciation, which is expected to enhance the return of the company and overall shareholders.

Coke business: The world's leading coke producer and supplier, with the advantages of production capacity scale and cost management. As of October 2024, the company's coke production capacity management scale was 22 million tons, including self-built 15.6 million tons and 6.4 million tons of operating management capacity. According to the company's “Six Five-Year Plan” for 2021-2025, it will continuously increase the total amount of coke processed, eventually reaching 30 million tons or more per year. In 2023, the share of the global coke market was 1.8%, up 0.2 pp year on year, accounting for 2.5% of China's total production, and 0.3 pp. According to statistics from Gangzhijia and Longzhong News, the price difference between coking coal and coke in Shanxi has been fixed since May 2024. Since the end of November, the price difference has gradually widened to around 250 yuan/ton, and the profit on coke is fair due to concessions in raw coal prices. The company's coke business uses settlement management and customized production to increase the proportion of fire transportation, improve handling capacity, accurate coal distribution and production, carry out strategic cooperation with large mines, improve strategies such as extending the industrial chain and importing Mongolian coal and Indonesian coal, reduce the cost per ton, increase profits, and is extremely competitive in the industry.

Chemical and new materials business: Leading the scale of many chemical products, becoming the world's leading new materials company. Relying on a huge scale of coking, the company extends from the coking industry chain to the fine chemical industry. It has a lower cost advantage and is leading the industry in many fields. Currently, the company is the world's largest coking crude benzene processor, the world's second-largest high-temperature coal tar processor, the world's second-largest caprolactam producer, the largest coke oven gas methanol producer in China, and the largest producer of industrial naphthalene phthalic anhydride in China. After years of development, the company has formed three major chemical product lines: carbon materials, alcohol, ammonia, and aromatic hydrocarbons. As of October 2024, the company's chemical production capacity management scale was 6.03 million tons, including self-built 5.37 million tons and 660,000 tons of operation and management capacity.

In recent years, the company has continued to expand into the field of downstream new materials, including new nylon materials, amino alcohols, etc. Caprolactam is a raw material for the production of PA6, PA66, nylon elastomers and high-temperature nylon, and is the main growth driver for the company's future fine chemical product segment.

Hydrogen energy business: The entire industry chain layout, focusing on Beijing-Tianjin-Hebei, and covering the whole country. The company is the largest producer of high-purity hydrogen in the Beijing-Tianjin-Hebei region. It uses industrial by-product hydrogen to develop and stabilize hydrogen energy demand, develop green hydrogen technology, lay out the future, and gradually replace green hydrogen. Currently, the company is developing, designing, and carrying out a small test phase of PEM electrolyzer, starting from the three dimensions of core component materials, electric stack structure design, and system process optimization. After forming a commercialized high-quality electrolyzer product, it will provide customers with electrolyzer equipment design services; after green hydrogen technology is mature, green hydrogen can be combined with by-production hydrogen, and the downstream green ammonia and green alcohol industries will help the company enter the green chemical industry chain. According to the 2024 semi-annual report, the company's total hydrogen energy production capacity reached 24,000 kilograms per day, operated three hydrogen fueling stations with a total hydrogenation capacity of about 3,000 kilograms per day, and increased the layout of hydrogen fueling stations. In 2023, the company's high-purity hydrogen production capacity accounted for 8.3% of China's Beijing-Tianjin-Hebei region, an increase of 2.6 pp over the previous year. The company actively participated in hydrogen industrialization plans in various cities in China (including Dingzhou, Xingtai, Baoding in Hebei, and Hohhot in Inner Mongolia). The company focuses on hydrogen energy development in the Beijing-Tianjin-Hebei region. The “manufacturing, storage, transportation and addition+research” integrated whole industry chain planning and layout of the hydrogen energy industry will spread the intelligent supply of hydrogen to the whole country, which is expected to fully benefit from the rapid development of clean energy in the future.

Investment advice

The company's 2024-2026 EPS is expected to be 0.08\ 0.12\ 0.15, respectively, corresponding to the company's closing price of 2.84 yuan on December 10 (automatically calculated using the RMB 1.081 exchange rate of RMB to HKD), and the 2024-2026 PE will be 36.1\ 23.6\ 19.3 times, respectively. Considering that the company is a leading global coke producer and supplier, and has advantages in production capacity scale and cost management, Yanshen's chemical and new materials business has opened a second growth curve, and the integrated entire industry chain layout of the hydrogen energy business is expected to fully benefit from the rapid development of clean energy in the future. In the future, as the coking coal-coke price gap widens from the bottom and the new materials and new energy business grows, the company's performance is expected to gradually improve. Covered for the first time, giving a “Buy-B” rating.

Risk Alerts

Risk of exchange rate changes: The company holds some assets in US dollars, Japanese yen and Hong Kong dollars, and has a certain scale of import and export business. Exchange rate fluctuations will affect import costs and export prices.

Risk of falling coking coal-coke price difference: The profit of the company's main product, coke, is related to the strong price difference between coking coal and coke. If the price difference continues to be in the bottom range or even weakens, it will directly affect the company's profit.

The new business project layout falls short of the expected risk: By laying out the new chemical materials and hydrogen energy business, the company is expected to bring new business growth points. If the project falls short of expectations, future performance growth may lack new momentum.