UBS maintains a Buy rating on Hangzhou Oxygen Plant as 2025 results are dragged by weak retail gas prices

Overview

This is a UBS earnings review of Hangzhou Oxygen Plant (Hangyang). Revenue growth in 2025 was solid, but net profit growth was modest, mainly due to weak retail gas prices and a higher selling and administrative expense ratio in 4Q. The report focuses on the gas business, equipment sales, fusion contracts, helium sales, the 2026 pipeline gas ramp-up pace, and the outlook for retail gas volumes.

Core views

UBS's core view is that while short-term visibility on gas volume growth is limited and 2025 new pipeline gas projects were below management's target, a further improvement in China's PPI could become a positive catalyst for a recovery in Hangyang's retail gas average selling price and provide significant earnings upside. On this basis, UBS maintains its Buy rating and Rmb32.00 target price.

Analysis framework

The report uses earnings decomposition and segment operating analysis, comparing 2025 revenue, net profit, gross margin, 4Q profit changes, and the performance of the gas and equipment businesses, and combines this with management guidance on 2026 new pipeline gas projects, retail gas volume trends, and the industry pricing environment to assess future earnings upside.

Methodology notes

• Valuation methodsDCF

  discounted cash flow valuation

  UBS said it values Hangzhou Oxygen Plant (Hangyang) using the DCF method and maintains a 12-month target price of Rmb32.00.

• 回报测算Forecast Stock Return

  forecast stock return

  The report defines forecast stock return as the sum of the expected price upside over the next 12 months and the dividend yield; for this report, forecast price upside is 8.1%, forecast dividend yield is 1.5%, and forecast stock return is 9.6%.

• 短期因子评估Quantitative Research Review

  quantitative assessment of short-term factors

  UBS disclosed that its Quantitative Research Review is used to assess analysts' views on the likelihood of certain short-term factors, and this time horizon differs from the 12-month horizon associated with stock ratings.

Asset mapping & comparison

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

• Hangzhou Oxygen Plant (Hangyang) / 002430.SZ

  Core coverage name

  Strengths

  Gas business revenue accounts for a high share, and the pipeline gas model is relatively stable; 2025 gas revenue rose 14% YoY, equipment sales rose 7.4% YoY; helium sales volume grew rapidly, and fusion contracts provide new business leads.

  Weaknesses

  2025 new pipeline gas projects were below management's target; lower oxygen and nitrogen prices in retail gas weighed on profit; 4Q net profit fell 22.5% YoY.

  Comparison

  The report compares 2025 new pipeline gas additions of 430k Nm³/h with management's 500k Nm³/h target, showing project delivery fell short of target; it also compares forecast stock return of 9.6% with the market return assumption of 6.8%, resulting in a forecast excess return of 2.7%.

  Risks

  Slower growth in downstream steel and chemicals, customer default, intensified competition in pipeline gas and retail gas, delayed or canceled AirPower acquisition, and weak post-merger integration.

Key data

• 2025 sales revenue growth10% YoYThe company's 2025 sales revenue increased YoY.
• 2025 net profit growth3% YoYNet profit growth lagged revenue growth.
• 2025 gross margin21.0%It was 20.9% in 2024 and improved slightly in 2025; implied 4Q gross margin was 22.1%.
• 4Q sales revenue growth9% YoY4Q revenue increased YoY.
• 4Q net profit change-22.5% YoYMainly due to a higher selling and administrative expense ratio.
• 2025 gas revenueRmb9.2bnUp 14% YoY, gross margin 16.45%, up 0.28 percentage points YoY.
• Pipeline gas as a share of gas revenue80%Pipeline gas revenue increased 15% YoY.
• Retail gas as a share of gas revenue20%Retail gas revenue increased 8% YoY and volume increased 28% YoY, but was weighed down by lower average oxygen and nitrogen prices.
• 2025 new pipeline gas projects430k Nm³/hBelow management's 500k Nm³/h target.
• 2025 equipment salesRmb5.4bnUp 7.4% YoY, gross margin 27.9%; overseas sales were Rmb809m.
• New air separation equipment ordersRmb4.1bnMainly for the downstream chemicals sector.
• New fusion contractsRmb100mFour new contracts were signed, but management warned that competition in this area is intense and gross margins may be lower than typical air separation equipment contracts.
• Helium sales volume growthabout 130% YoYSales value was still below Rmb40m, benefiting from a complete supply network and stable supply from Russia.
• Maximum pipeline gas to come onstream in 2026about 180-190k Nm³/hManagement did not provide formal financial guidance.
• New pipeline gas projects signed as of Apr 2026315k Nm³/hOf this, 260k Nm³/h was designated for Indonesia, and the rest came from Xinjiang.

Impact & implications

The report's investment implication is constructive: the 2025 results missed expectations due to weak retail gas prices and cost pressure, but the company's gas business still delivered revenue growth, while equipment orders and overseas sales provided support. If macro PPI improves and drives a recovery in retail gas average prices, the company's earnings upside could be released; otherwise, weak demand from the steel and chemicals downstream sectors, intensifying competition, and customer default risk could weigh on valuation and earnings.

Risks

• Weak property demand and a softer macro environment may further slow growth in the steel and chemicals industries.
• Some pipeline gas or on-site gas customers may be unable to perform under a difficult environment, creating default risk.
• Competition in pipeline gas and retail gas sales may intensify, compressing prices and margins.
• The acquisition of AirPower may be delayed or canceled.
• If the acquisition is completed, AirPower integration may proceed poorly.
• Competition in fusion is intense, and related contract gross margins may be lower than the company's typical air separation equipment contracts.

What to watch

• Whether China's PPI improves further and passes through to retail gas average prices.
• The ramp-up progress of about 180-190k Nm³/h of new pipeline gas expected to come onstream in 2026.
• The actual rollout pace of the 315k Nm³/h pipeline gas projects signed as of Apr 2026, especially the Indonesia project.
• Whether retail gas volumes increase by 500-600k tons as management expects.
• Whether selling and administrative expense ratios continue to weigh on net profit.
• Progress on the AirPower acquisition and potential integration risks.