Maintain Buy; overseas expansion is getting on track but earnings forecasts are cut

Overview

This report is HSBC Qianhai’s earnings review of Hangzhou Oxygen Plant. It states that although company net profit grew year-on-year in 2025, it was below expectations, with the main drags coming from weak domestic retail industrial gas pricing, pressured gross margins and asset impairments. At the same time, the overseas equipment business is improving, especially with air separation equipment orders in emerging markets such as Indonesia, indicating overseas expansion is gradually getting on track.

Core views

The core view is that short-term profit forecasts were cut because of gross margin, sales expense, and impairment pressure, while equipment orders and overseas expansion are positive medium-term factors. HSBC is constructive on the company’s competitiveness in large-scale ASU equipment manufacturing, believing it can continue to win orders in emerging markets; at the same time, the company’s valuation is more attractive than local industrial gas peers, so Buy is maintained.

Analysis framework

The report combines 2025 actual results, segment-level revenue and gross margin changes, 2026 year-to-date ASU equipment orders, overseas project progress, and a PB/ROE valuation framework. On valuation, HSBC reduced target PB from 3.2x to 3.1x and applied it to 2026-27 average forecast BVPS of RMB10.96, resulting in a RMB34.00 target price.

Methodology notes

• Valuation methodsPB-ROE valuation method

  Derive the target price by multiplying target PB multiple by forecast BVPS.

  HSBC uses a target PB of 3.1x, about 10% above the 2010-25 historical average PB of 2.7%. The rationale is that the 2026-27 average ROE forecast is 11.8%, above the 2010-25 average ROE of 11%.

• Earnings forecastSegment forecast adjustment

  Adjust revenue, gross margins, and net profit forecasts by business segment, including ASU, industrial gases, and helium.

  The report raised 2026-27 ASU revenue forecasts by 3-4%, but reduced industrial gas gross margin forecasts and lowered net profit forecasts due to lower gross margins, higher sales expenses from overseas expansion, and increased asset impairments.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 002430.SS

  Core covered security

  Strengths

  Strong competitiveness in large ASU manufacturing, improved overseas order momentum, and relatively attractive valuation versus local industrial gas peers.

  Weaknesses

  Weak domestic retail industrial gas pricing, pressure on gross margins, and the impact of asset impairments and overseas expansion expenses on profitability.

  Comparison

  The report states the company’s 2026/27e PB is 2.6x/2.5x and ROE is 11.3%/12.3%; A-share industrial gas peers are 4.1x/3.8x PB and ROE of 9.5%/10.6%.

  Risks

  Retail industrial gas price volatility, risks from expansion in the industrial gases business, changes in heavy industry policies.

• 603799.SS

  Overseas project-related customer; not rated in the report

  Strengths

  The company will build an ASU for Huayou Cobalt in Indonesia, reflecting progress in overseas orders.

  Weaknesses

  The company was not rated or financially analyzed in the report.

  Comparison

  Mentioned only as a case of Hangzhou Oxygen Plant’s overseas orders.

  Risks

  Project execution and overseas market conditions may affect the pace of order conversion.

Key data

• 2025 net profitRMB949mUp 3% year-on-year, but below HSBC expectations.
• Target priceRMB34.00Reduced from RMB37.50 previously.
• Current stock priceRMB28.09Market data as of close on 2026-04-13.
• Implied upside+21.0%Relative to the current stock price.
• Industrial gas revenue growth+14% y-o-yDriven by commissioning of long-term contract projects.
• Oxygen capacity by end-20253.6m Nm³/hUp 36% year-on-year.
• Equipment export revenue growth+30% y-o-yOverseas equipment sales performance was strong.
• 2026-27 net profit forecast revision-15.3% / -14.0%Mainly due to lower gross margins, higher selling expenses, and asset impairment pressure.
• 2028 net profit forecastRMB1,405mNew 2028 forecast introduced in this report.

Impact & implications

From an investment standpoint, Hangzhou Oxygen Plant’s near-term profit quality is affected by domestic retail gas prices and expansion costs, while improving overseas equipment orders help restore growth expectations. If overseas projects continue to be implemented, the company’s equipment revenue and market recognition may improve; however, if industrial gas prices remain weak or expansion introduces operational and financial risks, the pace of profit recovery may be slower than expected.

Risks

• Retail industrial gas prices are market-based; if prices fall sharply, company financial performance would be negatively affected.
• Accelerated expansion of the industrial gas business may create operational, financial, or production safety risks.
• Air separation equipment new orders are highly dependent on expansion and capacity additions in heavy industries such as refining, energy, and steel in China; if heavy-industry policy were to reverse materially, it could affect new orders and business prospects.

What to watch

• Whether air separation equipment orders in 2026 year-to-date can continue to convert into revenue.
• Execution progress of the Huayou Cobalt ASU project in Indonesia and other emerging-market overseas orders.
• Whether domestic retail industrial gas prices stabilize and rebound.
• Changes in industrial gas business gross margin, asset impairment, and overseas expansion sales expenses.
• Whether 2026-27 ROE approaches HSBC’s forecast average of 11.8%.