Incident: In the first half of 2024, the company achieved revenue of 2.176 billion yuan, a year-on-year increase of 4.62%, and net profit to mother of 0.113 billion yuan, an increase of 2.4% year-on-year. Among them, the second quarter achieved revenue of 1.163 billion yuan, a year-on-year increase of 1.98%, and net profit of 75.46 million yuan in a single quarter, a year-on-year decrease of 6.63% and a year-on-year increase of 102.75%.

Refrigerant prices have risen, but supply has declined, and sales have declined. 2024 is the first year that HFCs third-generation refrigerants have officially implemented quota management. Supply-side restrictions drive changes in the industry's supply and demand pattern. The overall supply of the industry is in a tight balance, and profitability is gradually picking up. However, market demand in the application areas of different fluorocarbon chemicals is uneven, which intuitively reflects a large gap in the market price increase of different products, which in turn affects the profit levels of companies with different product structures. In the first half of 2024, the company arranged production plans in strict accordance with quotas. Overall production and sales declined compared to the same period last year, market prices gradually rebounded under the influence of supply-side reductions, and product profit margins were restored. The company's fluorocarbon chemical production was 84,397.06 tons, down 14.07% year on year; after deducting the company's internal usage, sales volume was 45,849.41 tons (including sales volume sold as raw materials and mixed with outsourced fluorocarbon chemicals), a year-on-year decrease of 15.06%; from January to June 2024, it achieved operating income of 1039.8052 million yuan, a year-on-year decrease of 7.64%; the average gross profit margin was 20.28%, an increase of 11.12 percentage points over the same period last year.

New production capacity was put into operation, and sales of fluoropolymer products increased dramatically. The company's new production lines will be put into operation at the end of 2023 and the beginning of 2024. In the first half of 2024, the production of fluorinated polymer materials increased significantly. At the same time, the company continued to strengthen effective collaboration between R&D, production and marketing, increase market development efforts, and maintained simultaneous growth in the production, sales and revenue of fluoropolymer materials. The company produced 26,365.69 tons of fluoropolymer materials, up 65.82% year on year; after deducting the company's internal usage, sales volume was 19,952.32 tons, up 93.84% year on year; operating income was 834.0206 million yuan from January to June 2024, up 35.48% year on year; average gross profit margin was 17.02%, down 12.43 percentage points from the same period last year. The main reason for the decline in gross margin: First, due to the large increase in products with relatively low gross margin levels such as PTFE and HFP, which lowered the overall gross margin level of the fluoropolymer materials sector; second, due to slow recovery in downstream terminal market sentiment, the price fluctuation of fluoropolymer material products is declining, and the current decline is gradually narrowing.

Maintain an “overweight” investment rating. Considering that refrigerant sales are lower than expected, we expect the company's revenue in 2024-2026 to be 4.806 billion yuan, 5.43 billion yuan and 6.191 billion yuan, respectively, net profit to mother 0.237 billion yuan, 0.267 billion yuan and 292 million yuan, respectively, and EPS 0.62 yuan, 0.70 yuan, and 0.77 yuan, respectively. The current stock price corresponds to PE of 24.8 times, 22.1 times, and 20.2 times, respectively, maintaining an “incremental” investment rating.

Risk warning: Product prices fluctuate greatly, raw material prices fluctuate greatly, and the commissioning of new production capacity falls short of expectations.