Analysis of Yangtze Energy Tech's Gross Margin: Discussion on the Sustainability of High Gross Margin

According to the information I found, Yangtze Energy Tech (Yangtze Samsung Energy Technology Co., Ltd., stock code: 920158) is a national-level “Little Giant” enterprise of specialized, sophisticated, unique, and new, focusing on the design, R&D, manufacturing, and service of energy chemical specialized equipment. Its main products include electric desalting equipment, separation equipment, heat exchange equipment, storage equipment, carbon sequestration equipment, hydrogen energy equipment, etc.[1][2]

From the prospectus data, Yangtze Energy Tech has maintained a high gross margin level in recent years[1][2]:

• 2021: 42.68%
• 2022: 47.77%
• 2023: 32.36%
• Jan-Jun 2024: 40.65%
• 2024: 41.11%

Although the 44.49% gross margin you mentioned is not directly shown in the public data I found, the company’s gross margin has indeed remained at a high level for a long time (range of 32%-48%).

The company has mastered multiple core technologies such as high-speed electric desalting technology, intelligent response control electric desalting technology, and intelligent multi-level gradient composite electric field electric desalting technology, and has obtained 17 invention patents and 40 utility model patents[1]. This technical advantage provides basic support for high gross margin.

In the electric desalting equipment technology field, the company has obvious industry status and technical barriers[1]. Although peer companies generally deploy in this field, each has its own technical characteristics, and the competition pattern is relatively scattered, providing the company with a space for differentiated competition.

The company has obtained domestic A1 and A2 level pressure vessel design and manufacturing qualifications, GC1 and GC2 level pressure pipeline design qualifications, as well as multiple international certifications such as ASME, NBBI, DNV GL, NK, LR[1]. These qualifications constitute a high market access threshold.

The company’s products are applied in oil and gas engineering, refining and chemical engineering, marine engineering, clean energy and other fields, and the downstream demand is relatively stable[1].

From historical data, the company’s gross margin has certain fluctuations: the gross margin dropped to 32.36% in 2023, a significant decline compared to 47.77% in 2022[1][2]. This indicates that maintaining high gross margin is facing challenges.

The energy chemical equipment field is highly competitive, and comparable peer companies include Guangsha Huaneng, Xizhuang Co., Ltd., Kexin Electromechanical, Wuxi Dingbang, Lanke Hi-Tech, etc.[1]. With intensified industry competition, pricing power may be squeezed.

As an equipment manufacturing enterprise, fluctuations in raw material prices may affect the gross margin level. The decline in gross margin in 2023 may be related to cost pressure.

If the demand of major customers changes or they are lost, the company’s revenue and profit levels may be affected.

From a positive perspective, the company can maintain good profitability for a certain period through technical barriers, qualification advantages and market position. However, from historical data, the volatility of gross margin indicates that maintaining an extremely high gross margin (above 45%) is facing challenges.

• The company’s continuous innovation capability of core technologies
• Raw material cost control capability
• Changes in the prosperity of downstream industries
• Evolution of industry competition pattern
• New capacity launch and market expansion situation

Overall, Yangtze Energy Tech, as a technology-based enterprise in the niche sector, has certain competitive advantages, but investors should not overly expect that the high gross margin of more than 44% can be maintained for a long time. It is recommended to pay attention to the company’s subsequent financial reports and track the trend of gross margin changes.

[1] Prospectus of Yangtze Samsung Energy Technology Co., Ltd. (https://pdf.dfcfw.com/pdf/H2_AN202412301641477110_1.pdf)
[2] Updated Prospectus of Yangtze Samsung Energy Technology Co., Ltd. (http://pdf.dfcfw.com/pdf/H2_AN202509221748525856_1.pdf)