Company introduction: Fluorine Chemical Dragon 1, a complete industrial chain cluster, has a leading domestic advanced manufacturing base for fluorine chemicals and chlor-alkali chemical materials. It has formed a complete fluorine chemical industry chain including basic supporting raw materials, fluorine refrigerants, organic fluorine monomers, fluoropolymers, fluorine fine chemicals, etc., and is involved in petrochemicals. The company has a leading position in the refrigerant department. The production quota for second-generation refrigerant R22 is 47,000 tons, with a market share of 26.3%, which is second in the country (of which domestic use quota is the first); the third-generation refrigerant production equity quota is 252,000 tons (including 51% Feiyuan equity), and the total market share of the industry (Juhua+Feiyuan quota) is 37.4%, ranking first in the country. At the same time, the company's fluoropolymer materials are in a leading position in the country, and specialty chlor-alkali new materials (VDC and PVDC industry chains) are in the leading position in the world.
Refrigerants: Prices are still in the early stages of starting on the right side. The leading advantage is gradually expanding. Currently, China's refrigerant development is at the stage of accelerated elimination of the second generation and initial freezing of the third generation. Prices of related varieties have increased by varying degrees since 2024. In terms of second-generation refrigerants, China continues to cut quotas for second-generation refrigerants. As of 2024, China's total quota for second-generation refrigerants has actually been reduced by 49.9%. By 2030, it will be completely reduced to 97.5%, and only 2.5% of the maintenance quota will be retained. R22 is the most mainstream type of second-generation refrigerant. Its ODS is mainly used in the maintenance market, and demand is quite rigid. As R22 quotas are further reduced in 2025 and the future, the price of R22 is expected to continue to rise.
In terms of third-generation refrigerants, China's quota for third-generation refrigerants was officially frozen in 2024. A total of 746,000 tons were distributed, of which the quota for domestic use was 340,000 tons. After the 2020-2022 quota competition period, industry concentration increased. CR3 reached 67.4% and CR5 reached 85.0% (note: Juhua's market share includes Feiyuan). The supply side is heavily constrained, and industry concentration is high. The application fields of different varieties are different, but the number of new markets is increasing, and the total amount of maintenance is constantly expanding. As a result, demand for third-generation refrigerants grew steadily with quota restrictions, and prices started on the right, but compared to the current fourth-generation refrigerant R1234yf, the price is still low, and the actual supply of the industry this year includes last year's industry inventory and this year's quota. Therefore, we believe that the refrigerant industry is still in the early stages of starting on the right. As a leading enterprise in the industry (second-generation domestic quota market share first, third-generation market share first), the company has a large voice. The company's historical R22 quota transactions and acquisitions of Feiyuan Chemical mark a further increase in the leaders' voice in the industry. At the same time, the company has further developed into four generations of refrigerants, all reflecting the company's forward-looking strategic policy.
Fluorinated materials: Domestic substitution is gradually being completed. The company optimizes and upgrades fluorine materials to high-end varieties, mainly including fluoropolymers and fluorine-containing fine chemicals. The added value of the products is high, and domestic substitution is gradually being completed. Fluoropolymers: Polymerized from fluorine monomers, may vary in relative molecular mass, which will eventually cause differences in properties (such as differences in physical properties such as strength and thermoplasticity). In terms of categories, fluoropolymers include PTFE, PVDF, FKM, FEP, PFA, perfluorosulfonate resins, etc., and play an important role in the transformation and upgrading of traditional industries such as automobiles, chemicals, electricity, food, aerospace, and construction. Domestic products have been replaced by domestic products in low-end categories, but there is still room for further improvement in high-end categories, such as semiconductors and smart wearables. The company's production capacity and variety of fluoropolymers is in a leading position in China, and is leading the industry to promote the optimization and upgrading of product structures to new high-performance fluorochlorochemical materials. Fluorinated liquid: Used in the form of cleaning agents and coolants in the fields of semiconductors, liquid crystals, data center liquid cooling, etc., 3M dominates. It announced efforts to stop production of all fluoropolymers, fluorinated fluids, and PFAS-based additive products by the end of 2025, involving annual sales of about 1.3 billion US dollars, giving domestic alternatives. The company lays out ahead of schedule and is expected to occupy the market ahead of schedule.
Investment advice: first coverage, giving a “buy” rating
The company is a leader in the fluorine chemical industry. The third-generation refrigerant quota was officially frozen in 2024, and the industry has already begun to start on the right side, which is expected to usher in a long-term upward cycle. At the same time, the company lays out fluoropolymers and fluorine-containing fine chemicals to bring growth. Net profit attributable to 2024-2026 is estimated to be RMB 27.1, 41.4, and 5.53 billion yuan, covered for the first time, giving it a “buy” rating.
Risk warning
1. Changes in industry policies; 2. Industry demand growth falls short of expectations; 3. Product construction falls short of expectations; 4. Risk that profit forecasting assumptions are untrue or fall short of expectations.