Summary of Key Points from the Conference Call Industry Overview - The petrochemical and chemical industry is experiencing significant concentration, with many sub-industries like polyester industrial yarn, organic silicon, and trichlorosucrose successfully implementing joint price increases to adapt to market changes, indicating the feasibility of cooperation among enterprises in a "anti-involution" environment [1][3][4] - The midstream chemical manufacturing sector has been in a downward cycle since the second half of 2022, expected to bottom out by the end of 2025, marking a historically long downturn [1][5] - The current CITIC basic chemical index and leading companies' price-to-book ratios are at historical lows, suggesting a potential turning point in the second half of 2025 due to anti-involution policies [1][5] Market Dynamics - Recent policies have led to a rebound in prices for silicon-based industry chain products, with prices for polysilicon and industrial silicon futures rising over 20%, and organic silicon also showing recovery [1][7] - The industrial silicon market is expected to perform poorly in 2025, with prices nearing the cash cost line of leading companies, and recent price rebounds are unlikely to sustain significant increases due to weak demand [1][9] - The TDI market is highly concentrated, with Wanhua Chemical dominating and its pricing strategy significantly impacting domestic prices. TDI profitability is currently near historical lows, but prices are expected to rise starting in 2026 [1][12][13] Policy and Regulatory Environment - The anti-involution policies have slowed the production pace in the ethylene industry since the second quarter of 2025, particularly affecting coal chemical projects in Xinjiang [2] - The overall safety production situation in the chemical industry is severe, leading to increased regulatory scrutiny and restrictions on new projects [2] Price Trends and Future Outlook - The chemical industry is currently in a low cycle, with the PB ratio of the CITIC basic chemical index at 2.1, indicating a historical low valuation [5] - Oil prices are expected to stabilize around $60 per barrel in the fourth quarter, which could help control raw material costs and increase the likelihood of a market turning point in the second half of the year [6] - The glyphosate market has seen a price increase from 23,000 yuan to 25,500 yuan, with further upward potential due to limited new capacity and international supply chain disruptions [24][25] Investment Opportunities - The chemical industry is at a favorable point for investment, with many products and companies' stock prices at historical lows, suggesting lower investment risks [28] - Potential investment targets include companies in the glyphosate sector such as Xingfa Group, Xin'an Chemical, and Jiangshan Chemical, as well as dye companies like Runhua Co., Zhejiang Longsheng, and Jihua Group [28]

Economic Information - In the first five months, internet enterprises above designated size achieved internet business revenue of 773.5 billion yuan, a year-on-year increase of 0.9%, while total profit was 69.2 billion yuan, a year-on-year decrease of 2.2% [2] - In June, the average price of second-hand residential properties in 100 cities was 13,691 yuan per square meter, a month-on-month decrease of 0.75% and a year-on-year decrease of 7.26%, indicating a trend of "price for volume" in the market [3] Company Alerts - Aong Likang has only one innovative drug project under research, which is the ALK-N001 project [8] - *ST Yuancheng is under investigation by the China Securities Regulatory Commission for suspected false disclosure of financial data in annual reports and other periodic reports [8] - Several companies, including Hangzhou Thermal Power and Ruijie Environmental Protection, have announced plans for significant share reductions by major shareholders [10] Overseas Market Alerts - The NASDAQ index fell by 0.82%, with Tesla dropping over 5%, while the Dow Jones increased by 0.91% [5] - President Trump stated he does not plan to extend the July 9 deadline for trade negotiations, expressing skepticism about reaching an agreement with Japan [5][6] Storage Chip Market - TrendForce reported that DDR4 prices may peak and decline in the fourth quarter, driven by supply cuts and market demand, while DDR5 prices are expected to remain stable with a projected quarterly increase of 3% to 8% in 2025 [7]

Core Viewpoint - The price of H acid has significantly increased, leading dye companies to cautiously manage their production capacity [1] Company Summaries - Jinji Co. has not yet started trial production of its 8000 tons capacity for H acid [1] - Runtou Co. and Jihua Group have their H acid facilities currently in a state of suspension [1] - Zhejiang Longsheng has some facilities in trial production [1] Industry Insights - Recent data indicates that H acid prices have surpassed 44,000 yuan per ton, reflecting an increase of 8,000 yuan per ton since the beginning of the year [1]

Investment Rating - The report rates the chemical industry as "Outperform" [2] Core Views - The chemical industry has been significantly impacted by tariff-related policies and fluctuations in crude oil prices. Key areas of focus for June include safety regulations, supply changes in the pesticide and intermediate sectors, performance fluctuations due to export dynamics, and the importance of self-sufficiency in electronic materials [4][11] - The report suggests a mid-to-long-term investment strategy focusing on high oil prices, robust performance in the oil and gas extraction sector, and the growth potential in new materials, particularly in electronic and renewable energy materials [4][11] Summary by Sections Industry Dynamics - As of June 29, the TTM price-to-earnings ratio for the SW basic chemicals sector is 22.34, at the 63.93 percentile historically, while the price-to-book ratio is 1.83, at the 14.09 percentile historically. For the oil and petrochemical sector, the TTM price-to-earnings ratio is 10.98, at the 15.69 percentile historically, and the price-to-book ratio is 1.19, at the 2.39 percentile historically [4][11] Price Changes - In the week of June 23-29, 38 chemical products saw price increases, 38 saw decreases, and 24 remained stable. The average price of WTI crude oil fell by 12.56% to $65.52 per barrel, while Brent crude fell by 12.00% to $67.77 per barrel. The average price of MDI decreased by 1.59% to 15,500 CNY/ton, while H acid increased by 5.39% to 44,000 CNY/ton [10][28][30] Investment Recommendations - The report recommends focusing on companies with strong dividend policies and those in high-growth sectors such as oil and gas, electronic materials, and new energy materials. Specific companies highlighted for investment include China Petroleum, China National Offshore Oil Corporation, and several others in the electronic materials sector [4][11]

Group 1 - The supply of H acid is tightening, leading to an increase in prices, with the market average price reaching 44,000 RMB/ton as of June 24, 2025, up 2,250 RMB/ton from the previous day and 8,000 RMB/ton since January 1, 2025 [3][4] - Domestic H acid production faces challenges due to high energy consumption, significant waste emissions, and stricter environmental regulations, resulting in some companies halting production or operating at low capacity [4][5] - The demand for active dyes, which rely on H acid as a key raw material, is expected to remain relatively inelastic, supporting the upward trend in H acid prices [4][5] Group 2 - Aopu Technology has announced a stock incentive plan, proposing to grant 6.17 million restricted shares, representing 1.58% of the company's total share capital, to boost employee motivation and confidence in future growth [7][8] - The performance targets for the stock incentive plan include revenue goals of 1.87 billion RMB for 2025, 1.90 billion RMB for 2026, and 1.94 billion RMB for 2027, with corresponding net profit targets [8][9] Group 3 - Zhejiang Rongtai plans to acquire a stake in Jinli Transmission to enhance its competitive position and extend its industrial chain, aiming to hold at least 15% of the target company after the transaction [10][18] - Galaxy General has completed a new round of financing amounting to 1.1 billion RMB, indicating strong investor interest and support for its growth strategy [10][13] Group 4 - The wind power sector is experiencing significant growth, with a 134% year-on-year increase in newly installed capacity from January to May 2025, driven by policy support and market demand [22][24] - The solar power sector also shows robust growth, with newly installed capacity reaching 197.85 GW in the first five months of 2025, a nearly 150% increase year-on-year [22][23][24] Group 5 - The global semiconductor industry is projected to see a compound annual growth rate (CAGR) of 14% from 2024 to 2028 for 7nm and below capacity, driven by the increasing demand for advanced technology applications [35][37] - The photovoltaic sector in China has surpassed 1 billion kW in cumulative installed capacity, accounting for nearly half of the global total, highlighting the country's leadership in renewable energy [35][42] Group 6 - The marketing and sales SaaS industry is poised for rapid growth, with a projected CAGR of 50% from 2024 to 2028, driven by the increasing demand for AI-driven solutions [31][32] - The company Mifushi is positioned as a leader in the domestic marketing and sales SaaS sector, leveraging AI technology to enhance its product offerings and market presence [31][34]

Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Viewpoints - The H acid industry is facing tightening supply due to potential rectification of Inner Mongolia Yadong's facilities, which may impact its operating rate [5] - H acid prices have increased by 16% from 36,000 CNY/ton at the beginning of the year to 41,700 CNY/ton as of June 23, 2025, while active dye prices have risen by 15% [5] - The production of H acid involves nitration reactions, which may face stricter regulations following recent safety incidents, potentially leading to further price increases [6] Summary by Sections Industry Overview - The H acid industry is characterized by a competitive landscape with ongoing exit of backward production capacity due to stringent environmental regulations [5] Price Trends - H acid prices have shown a significant increase, currently at 41,700 CNY/ton, which is over 50% lower than the historical peak of 65,000 CNY/ton [6] Supply Chain Dynamics - The active dye price has effectively transmitted the cost pressure from H acid, indicating a healthy price transmission mechanism within the supply chain [5] Beneficiary Companies - Companies likely to benefit from the tightening supply in the H acid-active dye value chain include: - Jinchicken Co., Ltd. (0.5 million tons H acid capacity) - Runtu Co., Ltd. (10 million tons active dye capacity) - Zhejiang Longsheng (7 million tons active dye capacity) [7]

Investment Rating - The industry is rated as "Recommended" for investment, indicating a favorable outlook for the sector [2][8]. Core Insights - The price center of H acid is expected to rise due to tightening supply and demand dynamics, with a current market average price of 41,750 RMB/ton as of June 13, 2025, reflecting an increase of 5,750 RMB/ton since early January 2025 [6][8]. - The active dye industry is undergoing a phase of industrial upgrading and consolidation, with many small and medium enterprises being eliminated due to sustained price pressure since late 2019 [6][8]. - H acid, a key raw material for producing active dyes, constitutes 30%-50% of the total cost, and its price increase is likely to positively impact active dye prices, which have recently risen from 20 RMB/kg to 23 RMB/kg [6][8]. Summary by Sections Industry Overview - H acid production faces challenges such as high energy consumption and significant environmental pollution, leading to production halts in developed countries, with global capacity concentrated in China and India [6][8]. - Domestic effective H acid capacity is currently below 60,000 tons, resulting in a supply gap exceeding 10% [6][8]. Cost and Pricing Dynamics - The cost support from H acid is expected to facilitate a smoother transmission of price increases in active dyes, benefiting companies with integrated production capacities [6][8]. - The report highlights that companies like Zhejiang Longsheng, Jinchicken Co., Luntai Co., and Jihua Group are well-positioned to benefit from these dynamics [6][8]. Key Companies and Profit Forecast - Key companies to watch include: - Zhejiang Longsheng (Stock Code: 600352.SH) with an estimated EPS of 0.67 for 2025 and a PE ratio of 16 [9]. - Jinchicken Co. (Stock Code: 300798.SZ) currently un-rated but with significant production capacity [9]. - Luntai Co. (Stock Code: 002440.SZ) with an estimated EPS of 0.25 for 2025 and a PE ratio of 33 [9]. - Jihua Group (Stock Code: 603980.SH) with an estimated EPS of 0.25 for 2024 and a PE ratio of 81 [9].

Industry Overview - China is the world's largest producer, trader, and consumer of dyes, accounting for approximately 70% of global dye production [1] - Major dye production areas in China include Zhejiang, Jiangsu, and Shandong provinces, with a high industry concentration [1] - The dye industry is characterized by intense competition, with increasing production capacity both domestically and internationally [1] Company Performance - In 2024, the company achieved a revenue of CNY 5,695,178,073.59, a year-on-year increase of 1.91% [2] - The operating profit for 2024 was CNY 387,299,893.66, reflecting a significant growth of 106.36% [2] - The net profit attributable to shareholders reached CNY 213,487,437.36, marking a substantial increase of 366.42% [2] Q1 2025 Performance - For the first quarter of 2025, the company reported a revenue of CNY 1,278,360,881.91, up by 2.20% year-on-year [3] - Operating profit for Q1 2025 was CNY 73,642,844.60, showing a growth of 78.58% [3] - The net profit attributable to shareholders was CNY 47,793,114.62, a remarkable increase of 3,542.85% [3] Trade Friction Impact - The company's direct export ratio of dye products is low, resulting in minimal short-term impact from trade friction [4] - Long-term effects may arise if trade tensions persist, but the demand for textiles and apparel remains inelastic [4] H Acid Market Dynamics - Domestic effective capacity for H Acid is currently below 60,000 tons, leading to a supply gap exceeding 10% [5] - Historical prices for H Acid have exceeded CNY 100,000 per ton, with current market prices surpassing CNY 40,000 per ton [5] Company H Acid Capacity - The company's H Acid production capacity is located at its subsidiary, Jiangsu Mingsheng, which is currently in a state of suspension [6] Dye Pricing Strategy - Dye product prices are influenced by market supply and demand as well as raw material costs, with the company adopting a market-following pricing strategy [7] Industry Chain Strategy - The company implements a "backward integration" strategy to extend its industry chain, achieving significant results in key intermediate production [8] - The dye industry system has been established, encompassing a complete chain from thermal power, steam, chlorine, and caustic soda to intermediates and dyes [8]

Investment Rating - The report maintains an "Outperform" rating for the basic chemical industry [2] Core Viewpoints - The basic chemical sector has outperformed the market, with the industry index showing a year-to-date increase of 5.8%, surpassing the Shanghai Composite Index by 5.1 percentage points [6][17] - The report highlights significant price increases in key raw materials such as H-acid and active dyes, driven by environmental pressures and supply constraints [28][30] - The report suggests that the industry is entering a new long-term growth cycle, supported by government policies aimed at improving supply-demand dynamics [14] Market Performance - The basic chemical industry index remained flat week-on-week, ranking 14th among 31 sectors [17] - Year-to-date performance shows the basic chemical index up by 5.8%, outperforming both the Shanghai Composite and ChiNext indices [17][23] Key Events - H-acid prices reached 41,750 CNY/ton, marking a month-on-month increase of 3.09% and a year-on-year increase of 22.79% [28] - Active dye prices also increased, with a month-on-month rise of 4.55% [28] Product Price Changes - The report notes significant price increases in various chemical products, with HVO and SAF prices rising by 11.47% and 11.60% respectively [30] - The report identifies a positive feedback loop in the biodiesel supply chain, driven by rising raw material prices [30] Investment Recommendations - The report recommends focusing on companies with strong pricing power in the active dye and biodiesel sectors, including Jinji Co., Jihua Group, and Runtao Co. [29][30] - It also suggests that core assets in the chemical sector are entering a long-term value zone, with companies like Baofeng Energy and Wanhua Chemical highlighted for potential investment [15]

Investment Rating - The industry investment rating is "Outperform the Market" (maintained) [2] Core Viewpoints - The H-acid market is experiencing significant price increases, with a current price of 41,750 RMB/ton, reflecting a month-on-month increase of 3.09% and a year-on-year increase of 22.79%, marking a three-year high [4][6] - The active dye market price is currently 23 RMB/kg, with a month-on-month increase of 4.55% and a year-on-year increase of 9.52% [4][6] - The H-acid industry faces long-term supply-demand gaps due to environmental pressures, leading to the elimination of many small producers and a gradual increase in industry concentration [6] Summary by Sections Market Performance - The report indicates a market performance trend with a range from -22% to +22% for the period from June 2024 to February 2025 [3] Industry Dynamics - H-acid is a key intermediate for producing over 90 types of dyes, which are essential for dyeing wool and cotton fabrics, as well as for pharmaceutical production [6] - The production of H-acid generates complex and toxic wastewater, leading to high treatment costs and significant environmental pressures [6] - As of May 2025, the effective domestic production capacity of H-acid is less than 60,000 tons, indicating a supply gap of over 10% [6] Price Trends - The price of H-acid has been rising, which supports the upward price trend of active dyes, as H-acid constitutes 30-50% of the production cost of active dyes [6] - The active dye industry in China has a high concentration, with a CR4 of 64.91%, suggesting that leading companies have a strong pricing power [6] Recommended Stocks - The report suggests focusing on the following companies: Jinchicken Co., Jihua Group, Runtu Co., Haisheng Pharmaceutical, and Zhejiang Longsheng [6]