After experiencing rapid growth in performance in 2021 and 2022, dragged down by the downturn in the industry, Juhua Co., Ltd. (600160, SH), a leading fluorine chemical company, will hit a record high level of profit reduction in 2023 due to the decline in product prices, and has no choice but to hand over a report card with a double decline in revenue and net profit, of which the company's net profit has fallen off a cliff by more than 60%.
Recently, the price of refrigerant, the main product in Juhua's revenue, has risen from the trough.
According to Zhuochuang Information, from the perspective of the price fluctuations of various refrigerant products in the past ten years, the prices of many refrigerant products have a tendency to move closer to historical highs during the year. Combined with the company's leading HFCs (third-generation refrigerant) production quota in China, the research report of Minsheng Securities pointed out that "the company's performance is expected to fully benefit from the spot price increase of HFCs." "At present, it seems that the company's performance under pressure in 2023 may show an upward trend in 2024.
Sell more, earn less
According to the annual report data disclosed by the company, in 2023, Juhua Co., Ltd. will achieve operating income of about 20.655 billion yuan, a year-on-year decrease of 3.88%, a net profit of about 944 million yuan, a year-on-year decrease of 60.37%, and a non-net profit of about 823 million yuan, a year-on-year decrease of 64.6%. In 2022, Juhua Co., Ltd. will achieve a net profit of about 2.381 billion yuan in the case of similar revenue. In other words, although the company sold some more products in 2023, it is embarrassing to sell more money and make less, and all this points to the continuous record low product prices.
Juhua said frankly in the annual report that in 2023, "the company's profit reduction due to the decline in product prices will hit the highest level in history." ”
According to the disclosed data, during the reporting period, the decline in the sales price of Juhua's main products led to a profit reduction of 3.429 billion yuan, although the price of many main raw materials for its products was also reduced, but it could not cover the price reduction of terminal products, so it eventually led to a profit reduction of 1.796 billion yuan.
In terms of products, the prices of several main products of Juhua Co., Ltd. are falling except for fluorine-containing fine chemicals, including the price of basic chemical products fell by 1.497 billion yuan, the price of fluoropolymer products fell by 875 million yuan, the price of fluorine chemical raw materials fell by 701 million yuan, the price of food packaging materials fell by 155 million yuan, and the price of fluorine refrigerant products fell by 140 million yuan. The price of petrochemical materials decreased by 133 million yuan, and the price of fluorine-containing fine chemicals increased by 72 million yuan.
Source: Announcement
In addition to the decline in the sales price of the most important products, the decline in investment income, the increase in sales costs, research and development expenses and financial expenses also made the net profit of Juhua shares plummet.
In this regard, the company also pointed out that Juhua shares are facing a situation of excess contradictions in the industry in the past two years. In the past three years, the "involution", scale and high investment of the industry have led to a continuous decline in the capacity utilization level and profit level of enterprises above designated size in the industry, and in 2023, there will be a year-on-year decline in the price of industry products, a decline in the operating income of enterprises above designated size, and a sharp decline in profits. Specific to the company, it is the contradiction of oversupply in the product market has intensified.
The recovery in refrigerant prices may help the performance rebound
Although Juhua did not disclose the first quarter report of 2024 at the same time, judging from the sharp rise in the terminal price of the main product, the dilemma of pressure on performance in 2023 may be alleviated in 2024.
At present, the refrigerant products that account for the largest proportion of the products sold by Juhua Co., Ltd. (according to the data shown in the 2023 annual report, the revenue of refrigerants of nearly 6 billion yuan ranks first in the total revenue of multiple business lines of Juhua Co., Ltd., accounting for about 35% of the company's entire business operating income. After bottoming out in 2023, prices have seen a rapid rebound in 2024.
According to Zhuochuang Information, the refrigerant market in 2024 will be significantly affected by the HFCs quota policy, and the refrigerant market will usher in a boom cycle under the optimization of the industry's supply and demand relationship. Judging from the price fluctuation characteristics of various refrigerant products in the past ten years, the price of refrigerant products has a tendency to move closer to the historical high point during the year.
Source: Zhuochuang Information
The HFCs quota policy mentioned here mainly refers to the "2024 Annual HFC Quota Setting and Allocation Plan" (hereinafter referred to as the "Plan") issued by the Ministry of Ecology and Environment in 2023, according to the content of the "Plan", in accordance with the relevant provisions of the "Kigali Amendment", the baseline value of HFCs production and use in mainland China: in tons of carbon dioxide equivalent (tC0,), respectively, the baseline year (2020-2022) The average production and average use of HFCs in the continent are added to 65% of the baseline value of production and use of hydrofluorocarbons (HCFCs), respectively. Accordingly, the baseline value of HFCs production in China is determined to be 1.853 billion tCO, and the baseline value of HFCs use is 905 million tC0 (including the import baseline value of 005 million tC0,).
The above content can be simply understood as that the more production and sales, the more quotas you get.
Therefore, in the baseline year of 2020~2022, domestic companies are rapidly expanding the production capacity of third-generation refrigerants, and in order to expand sales, there is even a situation of increasing sales through price war strategies, all in order to seize as many quotas as possible before the implementation of the "plan".
In 2023, Juhua will further expand the production quota of HFCs, thereby strengthening the layout of the core industry of fluorine refrigerants.
The company said that through the commissioning of the fluorine refrigerant plant in the United Arab Emirates and the equity acquisition of Zibo Feiyuan Chemical Co., Ltd., the "1+3" global operation layout and synergistic complementary effect of fluorine refrigerants with Quzhou local port as the core have been formed, and the production quota of HFCs with absolute leading total volume and mainstream varieties has been obtained, and the company's global leading position in fluorine refrigerants and market competition have been firmly established.
Source: Announcement
On the other hand, changes in the terminal supply and demand environment have also contributed to the increase in refrigerant prices.
According to the data of Zhuochuang Information, the prices of mainstream refrigerants in East China in March rose significantly month-on-month, of which the refrigerant R32 increased by 25.24% month-on-month, and the year-on-year increase of 82.01% in March 23, and the refrigerant R125 and R410A also increased by 69.17% and 67.50% respectively over the same period. With the support of the peak season of terminal air conditioning production, the overall refrigerant market is improving significantly.
For the recent rapid rise in refrigerant prices, Minsheng Securities predicted the impact of refrigerants on the company's future performance in the research report: "The HFCs quota is leading the industry, and the company's performance is expected to fully benefit from the HFCs spot price increase." (This article was first published in Titanium Media APP, author|Cao Shengyuan)