Dongyue Group is a leading enterprise of integrated fluorosilicon materials in China, with leading production capacity of organosilicon, refrigerants, fluorinated polymer materials and other products in the industry. With the gradual landing of the production expansion plan, the company's market share continues to increase.
The company's proton exchange membrane breaks the foreign monopoly and actively distributes hydrogen energy business under the "double carbon" strategy. We believe that the company has outstanding scale and cost advantages, significant profitability of the high-end business, coverage for the first time, and a "buy" rating with a target price of HK $10.20.
Dongyue Group is the only leading enterprise in China that distributes fluorine and silicon industry at the same time. Dongyue Group is mainly engaged in the R & D, production and sales of new environmental refrigerants, fluorinated polymer materials, organosilicon materials, chlor-alkali ion membranes, hydrogen fuel proton exchange membranes and basic chemicals. The company's production capacity of organosilicon, refrigerants, fluorinated polymer materials and other products is leading in the industry. It is not only the leading enterprise in China's fluorosilicon industry, but also the largest fluorosilicon producer in Asia. The company's products are highly competitive in the world, widely used in a wide range of industries, and are recognized by excellent suppliers downstream.
With the transformation and upgrading of fluorine chemical industry, the market of high-end fluororesin is broad. In 2019, the company's revenue declined due to weak global demand, intensified international trade frictions and a decline in manufacturing prosperity. Due to the impact of the epidemic at the beginning of 2020, the company responded actively and implemented measures to improve quality and efficiency. With the reduction of the quota of second-generation refrigerants and the upgrading of refrigerants, refrigerants will continue to maintain high profitability. Fluororesin business research and development is actively invested, with a market share of 40%. With the introduction of new production capacity and the increase of industry concentration, the company will continue to be the industry leader.
The organic silicon market competition is fierce, the demand is upward, the production capacity doubles and the market share increases. Organosilicon materials are more and more closely related to people's daily life, industrial and agricultural production and the development of high and new technology. Compared with developed countries, there is still a gap in per capita silicone consumption in China, and China will become an important area for the growth of silicone demand. With the fierce competition in China's silicone market, after the completion of the subsidiary Dongyue Silicon Investment Project, the company's production capacity will double, which will help to further improve the downstream deep processing products, improve the added value of silicone products, and obtain good profit returns.
Hydrogen energy business breaks the monopoly, benefits from the "double carbon strategy" and conforms to the trend of energy development. The development of hydrogen energy is the only way to realize the "double carbon strategy", and fuel cell is an ideal way to utilize hydrogen energy. In the future, the subsidiary hydrogen can break the foreign monopoly in the field of proton exchange membrane, which is the key core material of fuel cell, achieve a qualitative breakthrough and enter the stage of mass production, with a net interest rate of 30%. The future subsidiary Dongyue Future hydrogen Energy Co., Ltd. has entered the counseling stage. If the listing is successful, it will broaden the financing channels, further enhance the competitiveness of the industry, and strive to be the first "glory film" in China.
Risk factors: sharp fluctuations in raw material prices; lower-than-expected downstream demand; lower-than-expected new production capacity; lower macroeconomic growth.
Investment advice: fluorine chemical industry and silicone downstream market is broad, maintain high growth. Reduce the refrigerant quota and consolidate the industrial base moat. With the increasing demand for fluorinated polymer materials and the release of silicone production capacity, the company's performance is expected to maintain steady growth. The company actively distributes the development of hydrogen energy, with the advantage of research and development, breaks the foreign monopoly, realizes the mass production of proton exchange membrane materials, and conforms to the national development plan of "double carbon strategy". The company continues to make efforts in the four aspects of fluorine, silicon, film and hydrogen to forge ahead and stabilize its leading position in the industry. We estimate that the company's homing net profit for 2021-2023 will be 12.681,15.77company17.27 billion respectively, corresponding to the EPS forecast of 0.60Universe 0.75Universe 0.82 yuan. with reference to the comparable company valuation and the valuation discount of Hong Kong shares compared to A shares, the company will be given a target price of HK $10.20 (corresponding to 15 times PE in 2021), with a "buy" rating for the first time.