Intrinsic Value Zhejiang Yonghe Refrigerant Co., Ltd. (605020.SS)

• Previous Close: $28.54
• Intrinsic Value: $20.28
• Upside potential: -29%

Stock Valuation Context

Business Model And Market Position

Zhejiang Yonghe Refrigerant operates as a specialized fluorochemical producer within China's basic materials sector, focusing on the research, development, and manufacturing of refrigerant gases and fluorocarbon products. The company maintains an integrated production model spanning from raw fluorite ore processing to sophisticated fluoropolymer materials, serving industrial refrigeration, air conditioning, and chemical manufacturing markets. Its comprehensive product portfolio includes hydrofluoric acid, mixed refrigerants, and fluorine-containing polymers, positioning it as a vertically integrated player in the refrigerant supply chain. Yonghe leverages its technical expertise and production capabilities to serve both domestic and international markets, competing in a specialized niche of the chemical industry where regulatory compliance and product purity are critical differentiators. The company's market position is strengthened by its control over key raw materials and established manufacturing infrastructure in Quzhou, China.

Revenue Profitability And Efficiency

The company generated CNY 4.61 billion in revenue with net income of CNY 251 million, reflecting a net margin of approximately 5.5%. Operating cash flow of CNY 583 million demonstrates solid cash generation from core operations, though significant capital expenditures of CNY 956 million indicate substantial ongoing investment in production capacity and infrastructure development to support future growth initiatives.

Earnings Power And Capital Efficiency

Diluted EPS of CNY 0.67 reflects the company's earnings capacity relative to its equity base. The substantial capital expenditure program, nearly double the operating cash flow, suggests aggressive expansion or modernization efforts that may enhance future earnings power but currently pressure near-term capital efficiency metrics and free cash flow generation.

Balance Sheet And Financial Health

The balance sheet shows CNY 132 million in cash against total debt of CNY 2.58 billion, indicating leveraged financial positioning. This debt level, while substantial, appears manageable given the company's operating cash flow generation and strategic investments in production assets that should support future revenue growth and debt servicing capacity.

Growth Trends And Dividend Policy

The company maintains a dividend policy with CNY 0.25 per share distribution, representing a payout ratio of approximately 37% based on current EPS. This balanced approach returns capital to shareholders while retaining sufficient earnings to fund the significant capital investment program and support ongoing business expansion initiatives.

Valuation And Market Expectations

With a market capitalization of CNY 12.6 billion, the company trades at approximately 2.7 times revenue and 50 times earnings, reflecting market expectations for future growth in the specialized fluorochemical sector. The beta of 0.618 suggests lower volatility than the broader market, indicating perceived stability in its niche market position.

Strategic Advantages And Outlook

The company's vertically integrated model and technical expertise in fluorochemical production provide competitive advantages in a specialized market. Strategic investments in production capacity position it to capitalize on growing demand for environmentally compliant refrigerants and fluoropolymer materials, though execution risk remains regarding the successful deployment of its substantial capital expenditure program.

Sources

Company financial statementsStock exchange disclosuresMarket data providers