Description of the event

The company released its 2024 semi-annual report. From January to June 2024, it achieved operating income of 1.359 billion yuan, a year-on-year decrease of 0.17%; net profit to mother of 35.4945 million yuan, a year-on-year decrease of 40.28%; and net cash flow from operating activities of -56.0682 million yuan, an increase of 85.88% year on year. Among them, revenue for the second quarter of 2024 was 1.307 billion yuan, up 0.10% year on year and 2446.04% month on month; net profit to mother was 75.6942 million yuan, down 44.89% year on year, up 288.30% month on month.

Incident comments

Continue to increase the high-end, green and intelligent layout. In July 2024, nine departments including the Ministry of Industry and Information Technology, the Development and Reform Commission, and the Ministry of Finance jointly issued the “Fine Chemical Industry Innovation and Development Implementation Plan (2024-2027)”. The document indicates that fine chemicals and new chemical materials are the key engines for promoting high-quality development in the petrochemical industry. They are related to the safe and stable supply chain, green and low-carbon development, and the improvement of people's livelihood and welfare. At the same time, it indicates the direction of high-end, green and intelligent development of the fine chemical industry. In the future, the petrochemical industry will increase R&D investment in new technologies, new processes, new materials, etc., to promote technological progress and industrial upgrading of the industry. The application of intelligent, digital, and green technologies will further improve the production efficiency and environmental protection level of the petrochemical industry, and promote the development of the industry in a green, low-carbon, and circular direction through measures such as energy saving, pollution reduction and carbon reduction, and comprehensive technical reform of old devices.

The company actively lays out green and low-carbon fields to promote technological innovation and industrial upgrading. The company responds positively to the national green development strategy, continuously increases investment in technological innovation, accelerates the development and application of green and low-carbon technologies, and promotes the development of the industry in a more environmentally friendly and efficient direction. The company actively implements the green and clean strategy, promotes energy purification, large-scale, low-carbon processes and product greening, and organizes experts to set up research groups to focus on low-carbon technology in the petrochemical industry and explore intelligent, green and high-end implementation paths. While making every effort to develop the existing market for special petrochemical equipment, special refining equipment, EPC turnkey services and other supporting products and services, the company will also actively expand its products and business downstream of the industrial chain, striving to make breakthroughs in new materials, new processes, and new energy sources, and improve the technical layout of the entire industry chain. In 2023, the company reached a series of strategic cooperation with a number of large enterprises, including reaching strategic partnerships with Linde Engineering, signing an industrial digital intelligence innovation platform agreement with COMAC Shanghai Airlines, and a joint innovation strategic cooperation agreement with CNPC Puyuan. We are committed to working together to integrate the technical advantages of the entire CNPC nuclear industry chain and the integrated R&D, design and manufacturing capabilities of Zhuoran Co., Ltd. in the future, making every effort to build a full-cycle green cycle industry cluster to enhance the overall competitiveness of the industry.

A new wave of petrochemical construction has begun, and the company has huge room for growth. The market size of the petrochemical installation industry has continued to grow since 2017, and is expected to maintain a steady growth trend in the next few years. In particular, from 2024 to 2027, the market is expected to continue to expand at a compound growth rate of about 7.2%, and the market size is expected to reach RMB 951.4 billion by 2027.

A memorandum of understanding was signed with Linde to open up market space for EDHOXTM technology, device modularization, etc. in domestic and global markets. Linde is one of the world's leading industrial gas and engineering companies. Linde and the company signed the “Strategic Partnership Memorandum of Cooperation on EDHOXTM Technology Implementation in China and Global Cooperation” for the first global cooperative EDHOXTM project in China. The company and Linde will accelerate the development of the combined competitive advantage of global manufacturing and design using the “integrated design and manufacturing” model.

As one of the leading domestic petrochemical equipment companies, without considering future changes in share capital, the company's net profit from 2024 to 2026 is estimated to be 0.16 billion yuan, 0.24 billion yuan, and 320 million yuan, corresponding to the closing price PE on August 29, 2024 being 14.1X, 9.5X, and 7.1X, respectively, maintaining a “buy” rating.

Risk warning

1. New orders fall short of expectations; 2. Order confirmation falls short of expectations; 3. Major changes in industrial policy.