Guosen Securities: Optimistic about the continuous recovery of the third-generation refrigerant industry, recommends focusing on fluorine chemical and upstream resource leaders

According to the information from CITIC Securities APP, CITIC Securities released a research report stating that with the implementation of quota management, continuous deepening of supply-side structural reforms, the trend of industry competition becoming more concentrated, and downstream demand continuing to grow steadily, as well as the rapid development of new fields and emerging market demand, we are optimistic that the third-generation refrigerants will continue to see a recovery in prosperity, with a strong certainty in the development trend of the supply-demand structure turning positive.

CITIC Securities recommends focusing on leading fluorine chemical companies with complete industrial chains, comprehensive infrastructure, leading scale, and advanced technology, as well as upstream resource leaders. Relevant targets include ZJJH (600160.SH), Sanmei (603379.SH), Yonghe (605020.SH), Haohua Technology (600378.SH), Kings (603505.SH), GDHEC Co., Ltd (600673.SH), and other companies.

Key points from CITIC Securities:

June Fluorine Chemical Market Review: As of June 30th, the chemical industry index/CCPI/fluorine chemical index were reported at 3036.11/4757/1089.43 points respectively, with changes from the end of May at -9.04%/-1.63%/-14.01%. In June, the fluorine chemical industry index underperformed the SWS Chemical Industry Index by 5.41% and underperformed the CSI 300 Index by 10.49%. CITIC Chemical Fluorine Chemical Price Index/Refrigerant Price Index were reported at 1072.90/1266.63 points respectively, with changes from the end of May at -2.1%/-5.8%. As of June 30th, R22 enterprises offered prices as high as 35,000 yuan/ton, with transactions mainly around 30,000 yuan/ton; R134a quota digestion progress was mainly normal, with low-price orders mainly shipped by distributors, and market prices around 29,000-30,000 yuan/ton; R32 retail market prices were 35,000-36,000 yuan/ton, and mainstream air conditioning demand long-term orders gradually approached market prices.

"Old for New" achieves phased results, boosting demand for downstream air conditioning and automotive refrigerants. Starting from Q4 2023, driven by factors such as the traditional stocking season for refrigerants, low industry inventory in the early stage, and expectations for the implementation of quota schemes, refrigerant prices have started to rise. From February 2024, various measures across the country have promoted the "Old for New" policy for automobiles and home appliances, stimulating consumption vitality. The performance of air conditioning production and automotive sales data has been impressive, and the refrigerant continues its prosperous upward trend. In terms of air conditioning, the cumulative production from January to May was 128.807 million units, a year-on-year increase of +16.7%. Considering factors such as the rise in bulk raw material prices, new highs in temperatures, a rebound in the real estate market, and the "Old for New" policy, air conditioning production has seen a significant year-on-year increase from March to June. According to industry forecasts, domestic air conditioning production in July, August, and September 2024 is expected to decrease by -14.8%, -16.6%, and increase by +8.0% respectively year-on-year. In terms of automobiles, from January to May, cumulative production and sales of automobiles reached 11.384 million and 11.496 million units respectively, with year-on-year growth of 6.5% and 8.3% respectively. In the overseas market, from January to May 2024, the overall automobile exports reached 2.45 million units, a year-on-year increase of 27%, with automobile export revenue reaching $46.4 billion, a year-on-year increase of 20%. The momentum of China's automobile export growth continues In the short term, May and June are still the peak seasons for cooling demand; in the long term, the global air conditioning market will continue to grow, and industries such as cold chain, heat pumps, and new energy vehicles will open up space for refrigerant demand.

Fluorine Chemical Industry News this month: The "replacement of old with new" policy has sparked consumer enthusiasm, achieving phased results in China's automotive, home appliance, and other sectors; in May, heat pump exports turned positive year-on-year, with impressive performance in Russia and Southeast Asia; there have been new developments in the temporary conclusions of the RAC and SEAC on the proposal to restrict PFAS within the EU; Haohua Technology's acquisition of China Blue Sky has received approval from the CSRC for registration; ZJJH Group and partners have jointly established a new company for liquid cooling and heat management materials for data centers; the Paris Olympics may set a record high temperature, with various countries planning to supply air conditioners to the Olympic Village.

Related targets: With the implementation of quota management, continuous deepening of supply-side structural reforms, a trend towards concentrated industry competition, and sustained stable growth in downstream demand, as well as rapid development of new fields and emerging market demand, we are optimistic that the third-generation refrigerants will continue to see a recovery in prosperity. The supply-demand pattern is developing positively with strong certainty towards a good development trend. We recommend focusing on leading fluorine chemical companies with complete industrial chains, comprehensive infrastructure, leading scale, and advanced technology in the field, as well as upstream resource leaders. Related targets: ZJJH Group, Sanmei Group, Yonghe Group, Haohua Technology, Kings Resources, GDHEC Co., Ltd., and other companies.

Risk Warning: Demand for fluorine chemical products falls short of expectations; policy risks (strict environmental policies on fluorine refrigerants, accelerated upgrading and replacement processes, changes in quota distribution policies, etc.); global trade frictions and export obstacles; low vitality in the real estate cycle; delays in project commissioning by various companies; rising raw material prices; chemical safety production risks, etc