Suzhou Jinhong Gas Co.Ltd(688106) (688106)
The bulk gas market is fragmented, and the industry has entered a period of accelerated integration after the tightening of environmental protection supervision
Bulk gas is the “blood” of industrial manufacturing. In recent six years, the market scale of industrial gas industry has increased by about 10%. It is expected that the scale of China’s industrial gas market will reach 217.2 billion yuan by 2023. The supply end of bulk gas is relatively scattered. There are more than 330000 industrial gas related enterprises in China, and the regionality is obvious. The new environmental protection regulations have accelerated the elimination of backward production capacity, and the industry concentration is expected to increase rapidly.
The electronic special gas market is monopolized by overseas enterprises, and there is broad space for domestic substitution
Benefiting from the continuous expansion of the capacity of wafer factories represented by SMIC and Huahong, the scale of China’s special gas market will still maintain rapid growth. It is estimated that the scale of China’s special gas market will be about 26.4 billion yuan in 2023 and 15% CAGR in three years. Electronic specialty gas has high technical and customer certification barriers. The Chinese market is monopolized by overseas oligarchs, and the top four occupy more than 85% of China’s share. According to our statistics, the total revenue of electronic special gas of 9 (proposed) listed companies in China in 2020 is about 2.596 billion yuan, while the market scale of electronic special gas in China has reached 17.36 billion yuan in 2020, and the domestic rate is only 14.95%. There is a wide space for domestic substitution.
The strategic positioning of “vertical development and horizontal layout” is clear, focusing on the semiconductor application field
After more than 20 years of development, the company has formed three sectors: special gas, bulk gas and natural gas. Its customers cover electronic semiconductor, medical treatment, environmental protection and other industries. The company adheres to the vertical and horizontal development strategy: 1) in the field of bulk gas, expand horizontally through mergers and acquisitions, and base itself on East China and layout the whole country; 2) In the field of electronic special gas, it has increased R & D investment for many years and continuously launched new IC products. Some products have successively passed the verification and mass production and shipment of SK Hynix, Jita and MgO. Recently, it has signed 1.2 billion bulk gas orders for semiconductors with northern integration. Under the background of domestic substitution of IC materials, the company is expected to grow rapidly in the semiconductor field.
Investment advice
The company is the gas leader in China’s electronic industry. It is expected that the revenue CAGR in the next three years will be 32.49%, the net profit attributable to the parent company CAGR will be 32.75%, the EPS will be 0.40/0.62/0.95 yuan respectively, and the corresponding PE will be 71 / 45 / 29 times respectively. Based on the absolute valuation, industry average and the company’s historical PE (52-98x), we give the company 60 times PE in 2022, corresponding to the target price of 37.47 yuan, and give a “buy” rating for the first time.
Risk statement
Macro fluctuations lead to lower downstream demand than expected; The R & D progress and production capacity of semiconductor business are lower than expected; Risk of price fluctuation of upstream raw materials; Risk of M & A of bulk gas business.
