Over the past two years, cyclical sectors have performed extremely well in the capital markets. Strong cyclical companies are increasingly facing a Davis double-hit in terms of performance and valuation.
Recently, non-ferrous metals have set off a round of price increases. Leading enterprises such as Zijin Mining, Shengtun Mining, Western Mining, Northern Copper, Tin Industry Co., Ltd., and Jinshi Resources have attracted great attention.
On closer examination, the reason for the good performance of non-ferrous metals lies in the changes in supply and demand. The market demand is growing steadily, but the supply increase is limited due to the particularity of the metal industry.
The mismatch between supply and demand has become the idea of many investors looking for cyclical industries.
Refrigerants are also such an industry, and even refrigerants are subject to "mandatory" quotas on the supply side, and the output of enterprises is fixed. Coupled with the increasing demand, it is easy to usher in a sharp rise in prices, especially the leading enterprises with large quotas have the logic of both volume and price.
On the demand side, the demand for the replacement of household air conditioners and the rise of new energy vehicles have promoted the steady increase in refrigerant demand.
On the one hand, in the past decade, the production of household air conditioners in mainland China has continued to increase, reaching 222 million units in 2022. With the improvement of residents' living standards, the trend of smart air conditioning replacing traditional air conditioning has been launched, and it is expected that by 2027, the market size of smart air conditioning will reach 800 billion yuan.
The upgrade and optimization of air conditioning is in the field of AI intelligence, and the core is still refrigeration and heating, which will greatly increase the demand for refrigerants under the trend of upgrading.
On the other hand, the automobile market, as a key downstream market for air conditioning and refrigeration, will have a sales volume of RMB4,861.4 billion in 2023. With the gradual popularization of the concept of zero-carbon emission reduction, new energy vehicles will promote the further prosperity of the automobile market, and the proportion of new energy vehicles will reach 34.7% in 2023.
In the third generation of refrigerants, R134A is mainly used in automotive refrigerants, and the demand for R134A continues to increase due to the automotive market.
On the supply side, the third-generation refrigerant quota policy will be officially implemented in 2024.
In 2024, the quota for third-generation refrigerants (HFCs) totals 745,600 tons. HFCs are mainly divided into four types: R32, R134A, R125, and R143A. Juhua shares are the largest proportion of all product quotas.
The production of refrigerants has a high degree of concentration, with Juhua shares, Sanmei shares and Yonghe shares as the three leading market shares reaching 80%, of which the three leading market shares of R143A products have a market share of 90.8%. Under the quota system, other capital has no chance to enter at all, and the competition pattern is very stable.
Driven by high demand, the price of refrigerant products will continue to rise in 2024.
As of April 19, the average price of R134A was 31,000 yuan/ton, up 1.09% from the beginning of the month and 47.1% from the end of last year. The prices of other types of refrigerants have also increased to varying degrees.
In addition, the cost of refrigerant products in the air conditioning and automobile industries is relatively low, and the price sensitivity is not strong, and the price of refrigerant is expected to continue to grow beyond expectations under the condition of increasing the industry's production schedule.
With the mismatch between supply and demand and the continuous rise in prices, Juhua Co., Ltd., as the refrigerant leader with the largest market share, will undoubtedly be the biggest beneficiary in the future.
Of course, to be able to obtain the largest quota in the market, Juhua is also fully prepared.
1. Ultra-high capacity utilization
The capacity utilization rate of the third-generation refrigerant (HFCs) of Juhua Co., Ltd. is 81.13%, which is significantly higher than the domestic average of 44.51%, and the quota system is based on the production capacity of the enterprise, and the high operating rate and capacity utilization rate bring great advantages to the company.
2. The business is in good condition
In the past three years, the overall operation and management efficiency of the company has been significantly improved. In 2023, the net cash flow from operating activities of Juhua Co., Ltd. will be 2.196 billion yuan, coupled with the decline in the cash cycle cycle, the company's cash recovery rate will increase significantly.
With good cash flow, in January 2024, Juhua Co., Ltd. completed the acquisition of 51% of the equity of Zibo Feiyuan Chemical, further consolidating the quota reserve and expanding the market share, and began to lead the industry to reverse and rise.
3. High R&D investment
Juhua Co., Ltd. has a complete R&D system and the leading R&D strength of the fluorine chemical industry in China, which is inseparable from the R&D investment behind the company.
Since 2020, the R&D expense rate of Juhua has increased year by year. In 2023, the company's R&D expenses will reach 1.001 billion yuan, a year-on-year increase of 21.47%, and the R&D expense rate will reach 4.85%.
Continental's third-generation refrigerants are expected to be phased down from 2029, which indicates that the production capacity will reach the upper limit in the future. So, in the long run, what room does the company have for development?
1. Lay out the fourth-generation refrigerant early
The fourth-generation refrigerants are currently concentrated overseas, with higher costs and fewer domestic patents. Juhua Co., Ltd. is the only leading enterprise in China with a series of fluorine-containing refrigerants of the first to fourth generations.
From the price point of view, the price of the fourth-generation refrigerant R1234YF will be higher than that of the third-generation R134A for a long time. And the fourth-generation products are not included in the national production quota, production capacity is expected to continue to expand, and the reserve of high-value products will bring long-term growth to Juhua shares.
2. Development of fluoropolymer PVDF industry
Fluoropolymers are one of the most promising industries in the organic fluorine chemical industry, which is in the middle and back end of the fluorine chemical industry chain and has high added value. Juhua has a series of fluoropolymer products such as PTFE, PVDF, FEP, FKM, PFA, ETFE, etc.
In 2022, the mainland's PVDF production capacity will grow rapidly, reaching 115,500 tons, an increase of 56.08% year-on-year, and the output will reach 57,800 tons, an increase of 21.39% year-on-year. With the growth of demand for lithium batteries, the demand for PVDF as a cathode binder for lithium batteries has risen rapidly.
Juhua focuses on the layout of PVDF products. As early as 2008, the Juhua investment project included 875 tons/year of PVDF. In 2023, the company's PVDF production capacity will reach 10,000 tons/year, in addition, there will be a 30,000-ton PVDF expansion project.
Juhua Co., Ltd. has supporting facilities for the whole PVDF industry chain and has obvious cost advantages.
3. Independent research and development of PVDC food packaging materials
PVDC packaging material is currently recognized as the best barrier performance of plastic packaging materials.
In August 2000, Juhua Co., Ltd. invested 130 million yuan to build the first 10,000-ton PVDC production device in China, breaking the blockade of PVDC production technology in mainland China by large foreign companies for a long time, and the company's technology has reached the world's advanced level.
Due to the continuous increase in the unit price of PVDC and the increase in the company's production and sales, the PVDC revenue of Juhua Co., Ltd. will reach 1.366 billion yuan in 2022.
In 2023, due to a slight decrease in the unit price of PVDC products, but an increase in sales volume, the company's revenue will not be greatly affected, achieving 1.3 billion yuan.
This year, Juhua will invest 367 million yuan to build a high-performance barrier material project and continue to increase PVDC production capacity. With the company's R&D efforts and investment in new production capacity, food packaging materials are expected to become the company's second growth line.
In general, relying on excellent R&D strength and financial advantages, Juhua Co., Ltd. has the largest market quota for HFCs refrigerants, and its performance is expected to reach a new high in 2024. In 2023 (updating), the company has obtained 303 institutions, including the social security fund, to raise funds, and it is still very interesting to see the long-term layout of fluoropolymers, food packaging materials and other fields in the future.
The above analysis does not constitute specific investment advice. The stock market is risky, and investors need to be cautious.
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