Key takeaway

The company has a complete fluorochemical industry chain and is a leading player in both refrigerants and fluorinated polymer materials. Since China introduced production quotas for thirdgeneration refrigerants in 2024, their prices have continued to rise, with greater long-term upside. As a leading producer of third-generation refrigerants, the company has strong pricing power. In fluorinated polymer materials, the sector is currently at the bottom of the cycle, while products such as PVDF and PTFE have shown signs of a modest rebound, and the business climate is expected to recover. In addition, as a leader in the fluorochemical industry, the company has maintained high R&D spending for many years and established an early lead in highend fluorochemical products such as fluorinated fluids and PFA, which are expected to contribute to long-term growth.

Event

The company released its 1H26 report, recording revenue of RMB13.340bn in 1H26, up 0.07% YoY, and net profit attributable to shareholders of the parent company of RMB2.650bn, up 29.23% YoY. In 2Q26, revenue was RMB7.322bn, down 2.77% YoY and up 21.68% QoQ, while net profit attributable to shareholders of the parent company was RMB1.477bn, up 18.94% YoY and 25.94% QoQ.

Quick Take

Rising refrigerant prices provided strong support, while revenue from fluorinated new materials grew YoY and QoQ

The refrigerant segment remained the company’s main profit contributor, and despite a YoY decline in downstream residential air-conditioner output, with domestic sales volume down 5.6% YoY and export volume down 6.8% YoY in 1H26, both refrigerant sales volume and prices increased YoY and QoQ in 2Q26, broadly in line with expectations. Specifically, the refrigerant segment generated revenue of RMB3.959bn in 2Q26, up 14.13% YoY and 26.00% QoQ, with an average selling price of RMB46,400/tonne, up 13.45% YoY and 4.27% QoQ, and sales volume of 85,400 tonnes, up 0.71% YoY and 20.96% QoQ. Among the other non-refrigerant segments, all segments delivered solid performance, except petrochemical materials and basic chemicals, where revenue declined slightly YoY. The company also commissioned 10,000 tonnes of ultra -pure PFA capacity in May and has begun supplying the product in commercial volumes. Specifically, revenue from fluoropolymers increased 34.50% YoY and 12.82% QoQ; revenue from fluorinated fine chemicals increased 33% YoY and 15% QoQ; revenue from fluorochemical raw materials increased 0.2% YoY and 45% QoQ; revenue from petrochemical materials decreased 22% YoY and increased 1% QoQ; revenue from basic chemicals decreased 7% YoY and increased 27% QoQ; and revenue from food packaging materials increased 34% YoY and 37% QoQ.

Refrigerant market conditions continue to improve in the short term, with substantial room for price increases over the medium to long term. In 2Q26, the average prices of R32, R125, and R134a were RMB63,500/RMB55,000/RMB61,900 per tonne, up 0.58%/7.85%/6.34% QoQ, respectively. Demand for residential air conditioners was relatively weak in 2Q26, but refrigerant prices continued to rise. On the one hand, price increases for refrigerants such as R134a drove up the average price. On the other hand, R32 prices continued to rise despite weak demand from residential air conditioners, indicating that producers remained resolute in their coordinated price support. In the short term, refrigerant producers have gained firm pricing power over R32 and R410a. Expectations for price increases in R125 and R134a are stronger in 2H26, which could drive up the average price. In the long term, third-generation refrigerants still have considerable room for price increases. As a leading producer of third-generation refrigerants, the company has repeatedly demonstrated its pricing power across the industry chain. It is expected to fully benefit from the long-term price uptrend in thirdgeneration refrigerants.

Investment recommendation: Based on the company's interim results, we slightly raise our previous forecasts. We expect the company to generate revenue of RMB30.298bn/RMB33.550bn/RMB37.774bn in 2026– 2028, versus our previous forecasts of RMB29.994bn/RMB32.785bn/RMB36.719bn, representing YoY growth of 12.25%/10.73%/12.59%, respectively. We expect net profit attributable to shareholders of the parent company to reach RMB6.082bn/RMB7.924bn/RMB9.700bn, versus our previous forecasts of RMB5.955bn/RMB7.630bn/RMB9.277bn, representing YoY growth of 60.77%/30.28%/22.42%, respectively. The current share price corresponds to PE multiples of 17.0x/13.1x/10.7x. We assign a 20x PE for 2027, with a corresponding target price of RMB58.6, and maintain "buy" rating.

Risks:

(1) Crude oil prices rise or fall beyond expectations: Crude oil prices are highly correlated with international political and economic conditions and are volatile. Significant fluctuations in crude oil prices would affect product prices, spreads, and earnings stability in the company's petrochemical and basic chemical raw materials segment, thereby affecting its profitability; (2) significant changes in the refrigerant quota policy: The quota policy currently in effect is the key driver of refrigerant price increases. Significant adjustments to the quota policy could affect market expectations for future refrigerant price increases, thereby affecting the share price; (3) macroeconomic volatility and a global economic downturn: Fluoropolymer products serve numerous and widely distributed downstream applications and are highly correlated with macroeconomic conditions. An economic downturn could weaken demand for fluoropolymer materials and other products. (4) Air conditioner production schedules fall short of expectations: Air conditioner production schedules affect refrigerant prices. A significant decline in scheduled production would exert some pressure on refrigerant prices.