On April 28, Luen Mei Quantum (600167.SH) released the first quarterly report of 2022. The operating revenue of the first quarter is about RMB 1.742 billion, with a year-on-year increase of 2.64%, and a year-on-year decrease of net profit attributable to the parent company of 4.40%. Compared with 2021, the company's operating revenue in the first quarter increased, and the net profit tended to be stable. Meanwhile, the net cash flow of operating activities in the current period has a year-on-year increase of 36.71%. Good cash flow ensures the abundant monetary capital. By the end of the first quarter of 2022, its monetary capital had reached RMB 7.121 billion, accounting for 46.81% of the final total assets.

Previously, affected by repeated epidemics, sluggish real estate market, rising coal prices, changes in fair value and other reasons, Luen Mei Quantum, which has achieved steady growth for more than 10 years, experienced a short-term performance fluctuation in 2021. However, the development of the company's main business remains stable, the heating area is still increasing against the downturn, and the performance in the first quarter shows an obvious positive trend.

Reducing impact of epidemic and sluggish real estate market forecasts a year-on-year increase of operating income

The continuously sluggish real estate market in 2021 also led to a slowdown in the growth of heating area of the company in the same year. Nevertheless, such adverse impact is reducing. Since 2022, a number of policies for boosting the real estate market have been successively issued in Shenyang, such as the Notice on the Resumption of Construction Projects in Shenyang in 2022 and the Implementation Opinions on Accelerating the Development of Affordable Rental Housing. According to market participants, the sluggish real estate market in 2022 is expected to be improved.

In the previous year, affected by the epidemic, some commercial and industrial plants in Shenyang within the service area were shut down, and the government suspended the project of replacing small boilers with central heating system, resulting in a certain impact on the company's engineering and heating pipeline constructing revenue in the short term. Industry insiders pointed out that with the effective promotion of the "dynamic zero-COVID" policy across the country and the overall coordination between epidemic prevention and control and economic and social development, it is expected that the impact of the subsequent epidemic situation on production and living will be reduced accordingly.

Rational coal price forecasts a year-on-year decrease of the raw material cost this year.

The impact of increasing coal price on the performance of Luen Mei Quantum is expected to be eliminated gradually. In the previous year, the increase of upstream coal price casts certain pressure on the company cost. In 2021, the high coal price kept the company's coal consumption and coal unit price increasing significantly compared with the same period last year, leading to the surging year-on-year increase in the raw material cost in 2021 and the first quarter of 2022.

It is noteworthy that the National Development and Reform Commission recently made a special deployment, which requires relevant provincial development and reform commissions to pay high attention to, guide and urge enterprises to strictly implement the requirements for signing and performing medium and long-term contracts of coal, and take practical measures to keep the medium and long-term coal transaction price within a reasonable range. Development and reform commissions at all levels will comprehensively monitor the prices of all links of coal production and circulation. When the prices are found to exceed the reasonable range, they will immediately take measures of reminding, interviewing, investigating and circulating notices of criticism to guide the coal price to return to the reasonable range.

According to analysts, as currently the coal price is becoming rational and the company is controlling the cost as much as possible through long-term association for locking price and coal storage in the off season, the future business cost is expected to have a year-on-year decrease.

Abundant cash at hand guarantees the strategic upgrading and new business expanding

Luen Mei Quantum has seen an increasing performance for a consecutive of more than 10 years with steady operation, good cash flow and strict cash control. By the end of the first quarter of 2022, the monetary capital reached RMB 7.121 billion, accounting for 46.81% of the total assets at the end of the same period. With abundant cash flow and monetary capital, the company can promote the upgrading of comprehensive energy strategies, expand strategic businesses such as hydrogen energy and energy storage, and enhance the core competitiveness of listed companies in a more confident way.

To fulfill the concept of the "carbon neutrality" goal, Luen Mei Quantum brought out a brand new "comprehensive energy strategy upgrading routine" on October 2021. Through developing the low-carbon technologies for energy saving and emission reduction, launching the comprehensive energy business, exploring the electric energy storage market and laying out the hydrogen energy industry, it thoroughly promoted the realization of the carbon neutrality goal.

"Comprehensive energy strategy transformation" is one of the highlights of its business development in 2021. Centering on core products of refrigeration, heating supply, electricity and gas, and combining digital technologies, it integrates the applications of the cutting-edge energy technologies and equipment, providing clients with clean, high-efficiency, safe, stable and comprehensive energy service. While further improving the efficiency of the urban central heating system, it vigorously developed the distributed clean energy technologies to realize the clean upgrading of the source end. At the tail end, it further improves the service quality, and promotes the service reaction speed and accuracy using the Internet of things technologies to realize accurate feedback.

In the future, the hydrogen industry layout will be another effort-exerting direction. In December 2021, Luen Mei Quantum invested RMB 100 million in INTEGRAL Co., Ltd. The two companies work together to develop the technical standards for hydrogen distributed power generation and hydrogen cogeneration, plan for key equipment and control technologies on a complementary basis.

According to Luen Mei Quantum, in the future it will give full play to its existing industrial resources and capital advantages, strive to make a breakthrough in the business direction of hydrogen cogeneration and hydrogen distributed power generation, and integrate the upstream and downstream industrial core technologies and equipment, especially in the key links such as clean energy hydrogen production, high-pressure hydrogen storage and fuel cells, in which it will actively lay out, form business collaboration, and build the core competence of hydrogen energy development.