Quick ReadPlain-language overview · read this first
Peric Special Gases is a leading domestic company in electronic specialty gases. Its technology and industry position are both solid, but this report rates it as “Avoid,” meaning the company itself is not poor, yet the current share price is too expensive and the stock is not recommended for purchase.
What does it mainly do? It supplies high-purity specialty gases to chip fabs and panel makers, including products such as nitrogen trifluoride. The business depends on long-term, stable supply: once it passes customer qualification and enters a customer's supply chain, orders become recurring, and rivals have a hard time taking that business because switching suppliers requires fresh validation and carries risk. This is a high-barrier, high-quality business, and the report acknowledges that.
The problem lies in earnings and price. The company has been expanding in scale in recent years, with 2025 revenue of about 2.26 billion, but the net profit that actually reaches shareholders has barely grown, while gross margin has fallen from about 38% to about 29%, as mature products face price wars and depreciation from newly built plants weighs on profit. More importantly, the valuation is stretched: based on current profit, buying the entire company would take about 370 years to pay back, far more expensive than peers. The current price is about 252 yuan, while the report's estimate of fair value based on the business itself is only several dozen yuan. In other words, the market is paying upfront for the “domestic substitution” story, rather than for cash already earned.
The biggest risk is exactly this kind of expensiveness: even if the company's fundamentals continue to improve, the share price could still fall sharply if valuation returns from a high level to normal. The report warns of a possible long-term loss risk of more than 80%. The company has plenty of cash and little debt, so survival is not the issue, but that cannot rescue an investor who buys at too high a price.
The report's final stance is clear: the company is worth continuing to watch, but at this price it is not worth buying with long-term capital. Wait until it falls back into a reasonable range.
The above is only a plain-language explanation of this report and is not investment advice. The stock market involves risk; invest with caution.
LeadPeric Special Gases is China's leading electronic specialty gases supplier, focused on chipmaking-critical gases such as nitrogen trifluoride and tungsten hexafluoride, ranking No. 1 in China and No. 9 globally by integrated-circuit electronic specialty gas sales revenue in 2024. The core thesis is that 2025 revenue reached 2.26 billion yuan, operating cash flow remained healthy, net cash was about 2.46 billion yuan, and the balance sheet was solid, but ROE has fallen from 22% to 6%, free cash flow remains under pressure, and the current PE TTM of about 370x and PB of about 22.75x are far detached from fundamental support. Rating Avoid: a capable business whose stock price has already consumed too much of the optimistic long-term story upfront.
Prices in the article are as of publication; see the valuation band above for the live price.
Conclusion First
Looking at Peric Special Gases as a business, I would assign a current rating of "Avoid", rather than "Watch with a buying bias." The reason is not that the company is weak. Quite the opposite: it has real technical accumulation in China's electronic specialty gases market, real customer validation, real capacity expansion capability, and a relatively solid balance sheet. But based on the public market data around June 8, 2026, the share price was about 252.18 yuan, the market capitalization was about 133.507 billion yuan, and PE TTM was about 370.85x while PB was about 22.75x. Its historical PE percentile was also close to an extreme high over the past three years. For a materials company whose free cash flow remains unstable, whose ROE has already stepped down clearly, and whose mature product prices have previously declined, this price is far beyond the margin of safety acceptable to a conservative long-term owner.
Investment rating: Avoid. Core judgment: First, the company itself is an understandable business with certain barriers. Second, it has a strong position in China's electronic specialty gases market, and some core products enjoy global scale advantages. Third, operating cash flow has been decent in recent years, but total capital expenditure is high and free cash flow is not stable. Fourth, the decline in margins and ROE in 2024-2025 shows that this is not a franchise that earns money effortlessly, but a manufacturing business that requires continuous investment and must absorb price competition. Fifth, the current market price has almost fully brought forward a very optimistic long-term growth scenario.
Is there a margin of safety at the current price: No. Suitable investor type: If the discussion is only about "company quality," it is more suitable for long-term research-oriented investors willing to study the semiconductor materials chain deeply and accept industry-cycle volatility. If the discussion is about the "current price," it is not suitable for balanced, conservative long-term value investors. Biggest uncertainties: First, whether the price and gross margin of mature core products such as nitrogen trifluoride can stabilize. Second, after heavy-asset expansion, whether new capacity can be realized at sufficiently high utilization rates and sufficiently good returns. Third, whether today's extremely high valuation mainly comes from sentiment and thematic premiums, rather than verifiable cash-flow capability.
If the stock market were closed for five years, I would be willing to keep studying this business. But if I had to use my own money today to "buy part of the whole company," I would not act at the current price. This is a classic case where the business may still be acceptable, but the stock price is highly unacceptable.
Business And Industry
How this company makes money. Peric Special Gases is centered on electronic specialty gases, and is gradually extending into triflic acid series products, high-purity electronic gases, advanced materials, precursors, and some electronic bulk gases. In 2025, the company generated revenue of 2.26 billion yuan. Management explicitly stated that triflic acid series products contributed about 299 million yuan of revenue, up 44.85% year over year. At the same time, the company continued to advance construction of high-purity electronic gases, silane, precursors, and its Shanghai and Hohhot projects. This shows that it is no longer only a nitrogen trifluoride company, but is evolving toward a more complete electronic materials platform. In 2025 downstream industry revenue, integrated circuits and display contributed about 1.803 billion yuan, forming the clear core. Biomedicine, new energy, and chemical materials were supplementary.
From a business-model perspective, it mainly earns money through continuous gas supply and continuous delivery, rather than one-off equipment sales. The key to this model is not traffic, but qualification, purity, stability, supply reliability, packaging containers, and distribution systems. The 2024 annual report disclosed that, based on electronic specialty gases, fluorochemicals, and high-purity metallic new materials, the company provides standardized technical solutions for industries such as integrated circuits and new energy materials. The 2025 annual report further emphasized eight domestic and overseas service centers and localized "product + service" delivery capability. For semiconductor materials, once a supplier enters a customer's supply system, orders are often repeatable. Still, order strength is affected by downstream utilization, process iteration, ASP changes, and progress of substitute products. Its revenue is therefore not subscription-like stable, but it is not a purely one-off transaction either.
Who the customers are, and whether revenue is stable. The latest annual report does not fully disclose the latest major customer list or the latest share of sales from the top five customers, so I must mark this point as "additional information required." What can be confirmed is that downstream demand is concentrated in integrated circuits, displays, biomedicine, new energy materials, and other industries, and that the company has built eight service centers while actively expanding overseas. Historically, customer concentration has not been low. Early data cited in IPO inquiry materials show that in 2019, the top five customers contributed about 50.13% of revenue, significantly higher than more diversified peers such as Guangdong Huate Gas and Jinhong Gas. Therefore, the true nature of this business is closer to "high-threshold B2B materials supply" than to consumer goods: once it enters the system, stickiness is relatively high; but because customers are few and large, volatility does not disappear.
Cost structure and dependencies. The cost base of an electronic specialty gases business is not light. It requires chemical reactions, purification, analytical testing, steel cylinders, tube-trailer containers, logistics distribution, and a strict safety and environmental-protection system. IPO inquiry materials noted that depreciation and leasing expenses accounted for a meaningful share of selling expenses, precisely because customized steel cylinders and tube-trailer containers have high unit prices and large demand. The 2024-2025 annual reports also clearly show that depreciation increased after new projects were transferred into fixed assets, pressuring profit. In other words, this is not a software-like asset-light business, but technology-driven heavy-asset manufacturing plus supply-chain delivery. This means that even if operating cash flow is good, it may not easily generate long-term high-quality free cash flow.
Whether the business is simple, transparent, and easy to understand. From the perspective of "understandability" in value investing, I give it 4/5. The way it makes money is not mysterious: make high-purity gases that can be qualified by chip and panel customers, deliver them steadily, keep broadening the product mix, and earn money through scale, qualification, and customer validation. The real difficulty is not the business model, but the technical qualification boundary, customer validation cycle, product substitution risk, price wars in mature products, and returns on capacity expansion. For ordinary investors, understanding product names is not hard. Understanding "which gas may be replaced by process upgrades over the next five years, and which new projects can earn back depreciation" is clearly harder.
What stage the industry is in. Long-term demand in the electronic specialty gases industry is generally growing, driven by semiconductors, displays, advanced packaging, new energy materials, and other areas. Haohua Chemical Science & Technology's 2025 annual report disclosed that China's electronic specialty gases market size was expected to be about 31.66 billion yuan in 2025, and noted that the high-end market still relies heavily on imports. Peric Special Gases' own 2025 annual report also emphasized that AI chips, advanced processes, and customized customer demand provide greater room for new product development. The issue is that this is not a linear growth industry: demand trends upward over the long term, but prices and margins do not necessarily rise in sync.
Competitive landscape and company position. Combining the company's public statements and research materials, Peric Special Gases is already in the first tier of China's electronic specialty gases market. The company's 2025 annual-report announcement summary disclosed that, based on Linx Consulting data, in 2024 the company ranked No. 9 globally and No. 1 in China by sales revenue in integrated-circuit electronic specialty gases. Research materials citing IPO prospectus data also show that in 2022, the company's nitrogen trifluoride capacity ranked among the global top three, while its tungsten hexafluoride capacity ranked No. 1 globally. This means it is not a marginal player, but a niche leader with real global significance. Its core competitors include both international giants and domestic players such as Guangdong Huate Gas, Jinhong Gas, and Haohua Chemical Science & Technology.
But one point deserves special attention: a strong industry position does not equal strong pricing power. The 2024 annual report stated very candidly that although revenue grew in 2024, intensified competition and price declines in mature products such as nitrogen trifluoride led to a year-over-year decline in net profit. Haohua Chemical Science & Technology's annual report also mentioned intensifying competition in China's electronic specialty gases market, pressure on mature product prices, and the impact of low-GWP and recycling solutions on some cleaning gases. In other words, this industry looks more like a hard-fought track within a good industry than a monopolistic franchise. I give industry attractiveness 3/5.
Moat And Governance
Moat breakdown. Peric Special Gases' most credible moat is not a consumer brand or network effect, but the combined barriers formed by process know-how, customer qualification, purity and stability, scale and service network, and safety, environmental, and licensing constraints. As of the end of 2024, the company had accumulated 318 authorized patents. In 2025 it newly applied for 126 patents and obtained 61 new patents. By the end of 2025, the company had also raised ultra-high-purity nitrogen trifluoride capacity to 18,500 tonnes/year and ultra-pure ammonia capacity to 10,000 tonnes/year, while advancing localized delivery through eight service centers. For semiconductor customers, switching gas suppliers involves qualification, yield, and safety risks, so switching costs are moderately high. For new entrants, replicating an electronic specialty gases platform that can scale, supply consistently, and enter the systems of multiple leading customers usually requires several years and heavy capital investment.
Breaking the moat into components, my judgment is: brand advantage is moderate; cost advantage is moderately strong; scale advantage is moderately strong; network effects are weak; switching costs are moderately strong; channel/service advantage is moderate; patent/license/regulatory barriers are relatively strong; data advantage is weak; corporate culture and operating capability are moderate; capital allocation capability is average. The current moat width is closer to stable but structurally differentiated: it may be widening in tungsten hexafluoride, high-purity qualification, new product development, and customer service; in relatively mature categories such as nitrogen trifluoride, it may be narrowing as the industry expands capacity and price competition increases. Overall, I give moat strength 3/5.
Can it raise prices in inflationary or weak environments. The answer is: some products can, but overall it is not easy. The 2024 annual report already proved that revenue growth does not necessarily translate into profit growth, because mature-product price declines can consume incremental volume. The company also disclosed that new products such as hydrogen fluoride, trifluoromethanesulfonyl fluoride, and acetylene have higher gross margins, and that triflic acid series products continued to scale in 2025. This means the company's real pricing power does not come from an overall supply monopoly, but from scarcity in specific products, qualification barriers, and the success rate of new product introduction. The company remained profitable from 2023 to 2025 during economic weakness or industry downcycles, indicating decent survivability. But the margin decline already shows that it does not possess the kind of super-strong pricing power that produces high returns regardless of the cycle.
Whether management is trustworthy. I have not seen clear evidence of financial fraud or hard governance violations in the verified public materials: the 2023, 2024, and 2025 financial statements all received standard unqualified opinions from auditors; the company continued to pay dividends, with payout ratios of about 30%; and in recent years it has not used large-scale buybacks to "beautify earnings per share." These are positive signals. On the other hand, this is a company under strong state-owned control: at the end of 2025, controlling shareholder Peric Technology held 69.17%, while CSSC Investment held 3.44%; employee shareholding platforms Wanhai Changhong and Wanhai Changfeng held 2.36% and 1.52%, respectively. This means control is stable, but it is not a typical founder-led company where management and minority shareholders are highly aligned on a per-share basis.
Whether capital allocation is rational. Its capital allocation has three sides. The first is capacity expansion: this is the main theme, and the intensity over the past three years has been very high. The second is dividends: in 2023 it proposed a cash dividend of 1.90 yuan per 10 shares; in 2024 it actually implemented a cash dividend of 1.73 yuan per 10 shares; and the 2025 profit distribution plan corresponded to cash dividends of about 104 million yuan, equal to about 30.03% of net profit attributable to shareholders. The third is M&A/internal integration: in 2025, it completed the acquisition of Huai'an Peric and entered electronic bulk gases. The question is whether expansion and acquisitions have increased per-share intrinsic value rather than merely increasing scale. Judging by the results, revenue is growing and assets are growing, but ROE is falling and FCF is weakening, so the financial return on capital allocation has not yet satisfied me.
Governance points that require extra monitoring. First, the company has deposit transactions with the group's finance company. At the end of 2025, Peric Special Gases' related-party deposit balance at CSSC Finance Co., Ltd. was about 1.178 billion yuan, higher than 464 million yuan at the end of the prior year. Second, the company has related-party transactions with its controlling shareholder/group involving patent licensing, fixed-asset procurement, and equity transfers under common control. Third, in 2025 it added 400 million yuan of long-term borrowings. Although this is still far below the cash balance, it shows that expansion is beginning to use more external financing. These points do not immediately negate the thesis, but they are enough for me to keep the management and capital-allocation score at 3/5, rather than higher.
Financial Quality
Conclusion first: Peric Special Gases' financial quality is not poor, but it is not "Buffett-perfect" either. Its best feature is operating cash flow that has been positive over the long term and usually higher than net profit. The area that concerns me most is persistently high total capital expenditure, which makes free cash flow unstable, while ROE and margins have also declined clearly over the past few years. This means it resembles an expanding manufacturing company with a technical moat more than an asset-light great business with natural cash-cow characteristics.
| Year | Revenue | Gross Margin | Operating Margin | Net Margin | Net Operating Cash Flow | Capex | Free Cash Flow | CFO/Net Profit | FCF/Net Profit | Weighted ROE | Debt-to-Asset Ratio |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 1.733 billion yuan | Unknown | 22.7% | 20.5% | 551 million yuan | Additional information required | Additional information required | 154.9% | Additional information required | 22.03% | 21.0% |
| 2022 | 1.956 billion yuan | 37.9% | 21.0% | 19.6% | 567 million yuan | 495 million yuan | 72 million yuan | 148.2% | 18.9% | 18.24% | 19.3% |
| 2023 | 1.616 billion yuan | 36.8% | 21.8% | 20.7% | 527 million yuan | 623 million yuan | -96 million yuan | 157.5% | -28.7% | 7.86% | 9.0% |
| 2024 | 1.929 billion yuan | 29.7% | 17.7% | 15.8% | 617 million yuan | 1.134 billion yuan | -517 million yuan | 203.0% | -170.0% | 5.56% | 12.2% |
| 2025 | 2.260 billion yuan | 28.9% | 16.9% | 15.3% | 677 million yuan | 722 million yuan | -45 million yuan | 196.0% | -13.0% | 6.07% | 20.4% |
Revenue, net profit, CFO, ROE, total assets, and total liabilities for 2021-2025 in the table come from the company's 2023-2025 annual reports and listing inquiry replies. Gross margin, operating margin, free cash flow, and cash conversion are calculated from those data. I did not fully obtain 2021 gross margin and capital expenditure from currently verified primary sources, so they are marked as unknown or requiring additional information. Also note that the 2025 annual report presents both "adjusted/unadjusted" comparison bases for 2024/2023, so readers should pay attention to changes in reporting basis caused by acquisitions under common control.
Growth quality. From 2021 to 2025, revenue increased from 1.733 billion yuan to 2.260 billion yuan, a four-year CAGR of about 6.9%. Operating cash flow rose from 551 million yuan to 677 million yuan, a CAGR of about 5.3%. But net profit attributable to shareholders went from 356 million yuan to 346 million yuan, meaning there was basically no real growth. In other words, the company's scale has become larger, but shareholder profit has not grown in sync. This creates a sharp contrast with the market pricing at hundreds of times earnings.
Margin trend. From 2022 to 2025, gross margin fell roughly from 37.9% to 28.9%, operating margin from 21.0% to 16.9%, and net margin from 19.6% to 15.3%. In 2024 especially, revenue recovered but profit declined. The annual report explicitly explained this as the result of increased depreciation after new projects were transferred into fixed assets, intensified competition in mature products, especially nitrogen trifluoride, and falling prices. Revenue and net profit resumed growth in 2025, but margins still did not return to 2022-2023 levels. This shows that past high margins at least partly reflected cyclical supply-demand benefits, rather than fully durable structural excess profit.
Cash-flow quality. The match between operating cash flow and net profit is actually a strength. From 2022 to 2025, CFO/net profit was mostly around 1.5-2.0x, suggesting accounting profit has not obviously detached from cash collection. The 2025 cash-flow supplementary information shows that, beyond net profit of 346 million yuan, the company added back non-cash expenses including fixed-asset depreciation of 387 million yuan and intangible-asset amortization of 12 million yuan. At the same time, increases in inventory and operating receivables consumed cash. The real problem lies in capital expenditure: capex was 623 million yuan in 2023, 1.134 billion yuan in 2024, and 722 million yuan in 2025, keeping free cash flow under pressure. Put simply, the profit is real cash profit, but growth still consumes a lot of capital.
Balance sheet. As of the end of 2025, the company had monetary funds of about 2.862 billion yuan, long-term borrowings of 400 million yuan, and non-current liabilities due within one year of about 1 million yuan, so net cash was still about 2.46 billion yuan. Total liabilities were 1.480 billion yuan, and total assets were 7.242 billion yuan. This shows that the company is not forcing expansion through high leverage. Its survivability is strong, and its cyclical resilience is much better than many manufacturing companies. Even though financing cash flow turned positive in 2025 and new borrowings were added, the current financial cushion is clearly still present.
Working capital and latest quarter. At the end of 2025, accounts receivable were about 502 million yuan, up from the prior year-end. Inventory was about 337 million yuan, also clearly higher than the prior year. Accounts payable were about 683 million yuan, increasing at the same time. Overall, this is common working-capital occupation under capacity expansion and business growth. There is no sign of loss of control for now, but it is also not becoming "lighter" as it grows. The latest Q1 2026 report showed net profit attributable to shareholders of about 101 million yuan, up 16.86% year over year, and recurring net profit up 30.70% year over year, but net operating cash flow was -128 million yuan, turning from positive to negative year over year. This shows that seasonality and project timing can cause large short-term cash-flow swings.
Signs of financial fraud or aggressive accounting. In the materials I verified, I did not see particularly strong signs of fraud. The reason is straightforward: audit opinions have consistently been unqualified, operating cash flow has been above net profit over the long term rather than below it, and the balance sheet has not used high leverage to "pile up" profit. What really requires attention is not fraud, but three things: related-party transactions and dealings with the group finance company, the realization of returns after capacity expansion is capitalized, and the impact of acquisitions/common-control adjustments on comparability. This looks more like the governance complexity of a state-owned expansion growth stock than an obvious financial red flag.
Owner Earnings And Valuation
Conservative estimate of Owner Earnings. Under a strict Buffett-style approach, the key for Peric Special Gases is not "how much net profit it has," but "how much real money remains for shareholders after deducting the capital required to maintain the business." In 2025, net profit attributable to shareholders was about 346 million yuan. After adding back fixed-asset depreciation, right-of-use amortization, intangible-asset amortization, and long-term deferred amortization, non-cash expenses totaled about 400 million yuan. But maintenance capital expenditure was not disclosed by the company, so I must use a range. If we very conservatively assume maintenance capex equals 100% of depreciation and amortization, 2025 Owner Earnings would be about 277 million yuan. If estimated at 80%, it would be about 357 million yuan. If estimated at 60%, it would be about 437 million yuan. Please note that this is still only an estimate, because management has not directly separated "maintenance" and "growth" capex.
| Measure | 2025 Value | Explanation |
|---|---|---|
| Net profit attributable to shareholders | 346 million yuan | Accounting profit |
| Add back non-cash expenses | About 400 million yuan | Depreciation and amortization total |
| Strict free cash flow | -45 million yuan | CFO - total capex |
| Conservative Owner Earnings | 277 million yuan | Maintenance capex = 100% of depreciation and amortization |
| Neutral Owner Earnings | 357 million yuan | Maintenance capex = 80% of depreciation and amortization |
| Optimistic Owner Earnings | 437 million yuan | Maintenance capex = 60% of depreciation and amortization |
The Owner Earnings in the table are my estimates based on the company's 2025 cash-flow supplementary information and capex data, not a company-disclosed measure.
Dividing the current market capitalization roughly by these three Owner Earnings measures produces valuation multiples of about 305-482x owner earnings. Even using the neutral measure, the multiple is around 370x. And remember, this still assumes that future new projects can effectively convert into high-quality earnings. From the perspective of "buying the whole business," this price is almost unacceptable.
Method 1: Owner Earnings discounting. I use three valuation scenarios. The conservative scenario starts with 280 million yuan of Owner Earnings, assumes 5% growth over the next ten years, an 11% discount rate, and 2% terminal growth. The neutral scenario starts with 360 million yuan, assumes 8% growth over ten years, a 10% discount rate, and 3% terminal growth. The optimistic scenario starts with 440 million yuan, assumes 12% growth over ten years, a 9% discount rate, and 3% terminal growth. Adding net cash of about 2.46 billion yuan at the end of 2025 to equity value gives the following rough intrinsic value per share. These assumptions are already very generous toward growth.
| Scenario | Starting Owner Earnings | Ten-Year Growth Assumption | Discount Rate | Terminal Growth | Estimated Intrinsic Value Per Share |
|---|---|---|---|---|---|
| Conservative | 280 million yuan | 5% | 11% | 2% | About 12 yuan |
| Neutral | 360 million yuan | 8% | 10% | 3% | About 19 yuan |
| Optimistic | 440 million yuan | 12% | 9% | 3% | About 33 yuan |
These results are estimates based on public financial data, not share-price forecasts. Even if I raise the optimistic scenario somewhat, it is difficult to push reasonable value to a level dozens of times above what current book value and cash flow support.
Method 2: Relative valuation. Compared with peers, Peric Special Gases' current valuation still looks extremely expensive. Public market data show that Peric Special Gases currently trades at about 370.85x PE TTM and 22.75x PB; Guangdong Huate Gas at about 192.69x PE and 12.60x PB; Jinhong Gas at about 150.1x PE and 4.0x PB; and Haohua Chemical Science & Technology at about 38.34x PE and 3.24x PB. In other words, even if peers are not cheap, Peric Special Gases is still at a more extreme position. If we roughly apply the median PE of these three peers, the implied Peric Special Gases price would only be around 100 yuan. If we apply the median PB, the implied price would be about 44 yuan. Even using a high peer PB ceiling would only produce a little above 130 yuan, still below the current price. More importantly, expensive peers do not justify this degree of expensiveness.
Method 3: Asset/liquidation value. As of the end of 2025, net assets attributable to shareholders were about 5.762 billion yuan, corresponding to net assets per share of about 10.88 yuan. Net cash was about 2.46 billion yuan, corresponding to net cash per share of about 4.65 yuan. Because many of its fixed assets, fine-chemical facilities, steel cylinders, and specialized equipment would not be recovered at book value in a liquidation scenario, I would not treat book net assets directly as recoverable value. Even so, the "floor" suggested by an asset method is roughly in the low teens to below twenty yuan, far from supporting the current price. The significance of the asset method here is not to say the company is cheap, but to remind us that the price the market is willing to pay today is mainly for future narrative, not for assets and cash flow already formed and distributable.
Valuation conclusion. Combining the three methods, my range is: conservative intrinsic value of 12-18 yuan; reasonable intrinsic value of 18-30 yuan; optimistic intrinsic value of 30-45 yuan. On this basis, the current price of about 252 yuan still carries a premium of about 460% relative to the upper end of optimistic intrinsic value; relative to neutral value, the premium is even higher. Therefore: Ideal buy price range: 12-20 yuan; Acceptable hold price range: 20-30 yuan; Clearly overvalued range: above 45 yuan. This does not mean the company is only worth a dozen yuan. It means that measured by the required return of a long-term business owner, the current price has completely broken away from conservative valuation discipline.
Margin Of Safety And Counterarguments
Whether the margin of safety is sufficient. My judgment is very clear: insufficient, and almost nonexistent. The most fragile assumption in the valuation is not "whether revenue will keep growing," but "how high a valuation multiple the market is willing to give it over the long term." For Peric Special Gases today, even if fundamentals continue to improve, investors may suffer huge losses if the valuation falls from an extreme level back to a "still not cheap" normal growth-stock range. For example, if EPS doubles over the next few years but the market is only willing to pay 80-100x PE, the share price could still be significantly below today's level. For this stock, the biggest danger is not short-term volatility, but long-term mean reversion after buying at a high valuation.
If growth is below expectations, does the investment still work. Probably not. The current valuation implies not "steady growth," but something closer to "extremely high growth + extremely high quality + extremely high certainty" all at once. Reality is that the company's revenue CAGR over the past four years was less than 7%, net profit barely grew, and mature products have already experienced price competition and gross-margin compression. If future new projects cannot significantly improve profitability, or if they only make revenue and capex larger without a synchronized increase in Owner Earnings, today's high price will be hard to justify.
If margins decline, does the investment still work. From the perspective of corporate survival, yes. From the perspective of return at the current price, probably not. The company has ample cash and substantial net cash, so margin decline may not damage the foundation. But the stock price has already prepaid too much future margin stabilization or improvement. The 2024 annual report already proved that, even with rising revenue, mature-product price declines and depreciation pressure can be enough to reduce net profit. If core product prices remain under pressure in 2026-2028 and new projects cannot ramp quickly, "good company at a bad price" will evolve into "the company is still alive, but shareholder returns are poor."
The strongest bear case. The strongest bear case is actually very simple: Peric Special Gases may be a decent company, but the current share price looks more like the combined product of a national-team electronic materials leader narrative, domestic-substitution imagination, short-term capital chasing, and thematic valuation than a rational discounting of verifiable cash flow. Bearish investors likely focus on the following: first, ROE has fallen from 22.03% in 2021 to 6.07% in 2025; second, free cash flow was not attractive for most of 2023-2025; third, price wars in mature products have already occurred; fourth, the current valuation is clearly too high relative to the STAR Market average. This bear case does not deny that the company can make money. It denies that it is worth this price.
What facts would overturn my cautious judgment. First, if over the next three to five years the company can, without materially increasing leverage, lift Owner Earnings steadily to the 800 million to 1 billion yuan range and keep ROE/ROIC rising, I would raise intrinsic value again. Second, if new capacity ramps smoothly, the share of high-end new products rises significantly, and margins return to high levels for reasons that are not one-off. Third, if the current extreme valuation falls sharply back toward a neutral value range, the same company would become a completely different investment opportunity. Conversely, if the following occur, I would admit the original bullish logic was wrong: core product ASP keeps falling, free cash flow fails to turn positive for a long time, utilization of expansion projects remains depressed, related-party transactions become heavier, a major safety or environmental incident occurs, or process substitution marginalizes core products.
The most important risks. The most important issue is not news noise, but the risk of permanent capital loss: the risk of price wars and margin decline in mature products; the risk of inadequate returns after high-intensity capital expenditure; the risk that customer concentration and major-customer qualification fall short of expectations; the technology/regulatory risk that core categories are partly substituted by low-GWP, recycling, or new-process solutions; governance risk from group related-party transactions and fund dealings with the related finance company; and the most realistic and fatal one: valuation risk. Any one of these points may not be fatal by itself, but when combined with a starting point of 370x PE, they become very dangerous.
Comparison Checklist And Final Conclusion
Compared with other opportunities. If I compare within the "electronic specialty gases/electronic materials" basket, Peric Special Gases' company quality is indeed not weak. But if the comparison is about risk-reward, it may not be the best choice. At least based on public valuations, Guangdong Huate Gas, Jinhong Gas, and Haohua Chemical Science & Technology are all much cheaper, and Haohua Chemical Science & Technology has more obvious diversification and valuation discipline. From a broader allocation perspective, Peric Special Gases' current valuation is even far above the STAR Market's overall average of 30.35x PE. For a balanced, conservative investor with a holding period of more than ten years, I do not see why buying Peric Special Gases today would be clearly better than buying a more diversified, more valuation-disciplined broad index or industry basket.
From the perspective of a "risk-free/low-risk alternative," Peric Special Gases' 370.85x PE corresponds to an earnings yield of only about 0.27%, offering almost no risk compensation for an equity asset. Even if you do not compare it with government bonds and simply treat it as a business acquisition case lasting more than ten years, the price looks seriously distorted. Therefore, if my capital could only hold five assets, it does not deserve a place in the portfolio at the current price. But if the market returns to rationality in the future, the price falls sharply, and fundamentals remain intact, it could become a very good watchlist candidate.
Investment Checklist
| Item | Judgment | Brief Explanation |
|---|---|---|
| Can I understand this business? | Pass | The business model is clear, but technical details are complex |
| Does it have long-term stable demand? | Pass | Semiconductor/display/medical demand exists over the long term |
| Does it have a durable moat? | Uncertain | Qualification and process barriers exist, but mature products are under pressure |
| Does it have pricing power? | Fail | Some new products do, but the overall business is not strong |
| Can it generate stable free cash flow? | Fail | CFO is good, FCF is unstable |
| Are capital returns excellent? | Fail | ROE has clearly stepped down |
| Is management trustworthy? | Uncertain | Clean audits and stable dividends, but SOE governance requires a discount |
| Is capital allocation rational? | Uncertain | Expansion is active, but returns still need verification |
| Is the balance sheet solid? | Pass | Significant net cash and low leverage |
| Is valuation below intrinsic value? | Fail | Clearly above it |
| Is the margin of safety sufficient? | Fail | Almost none |
| Would long-term holding let me sleep well? | Fail | The company is worth studying; the price is not reassuring |
| What key facts would make me sell? | See below | Gross margin, utilization, FCF, governance, valuation |
| Am I tempted to buy only because of price action/sentiment? | Requires high caution | Current market pricing has a strong emotional component |
The core meaning of this checklist is simple: the business itself is broadly acceptable, but the stock price is seriously unacceptable.
Final rating: Avoid. One-sentence investment thesis: Peric Special Gases is an electronic specialty gases leader with technical barriers, decent cash flow, and a good industry position, but the current share price has brought forward too many years of optimistic outcomes, leaving a very poor risk-reward profile.
Core bullish reasons. First, in integrated-circuit electronic specialty gases, the company is already No. 1 in China and No. 9 globally, and some core products have global leading capacity. Second, qualification, purity, supply stability, service centers, patents, and safety/environmental systems form real entry barriers. Third, operating cash flow is generally healthy, and the balance sheet is mainly net cash, giving it strong survivability. Fourth, triflic acid series products and new varieties continue to scale, showing the company is not only relying on old products. Fifth, long-term demand is real, and semiconductor and display materials localization still has practical room.
Core bearish reasons. First, the current valuation is extreme, with PE, PB, and historical percentile all significantly high. Second, ROE has fallen from a high level to the mid-single digits, showing capital returns are not stable. Third, free cash flow has been unstable in recent years, and growth relies heavily on capital investment. Fourth, mature categories have already seen price competition, showing the moat is not impregnable. Fifth, related-party transactions, returns on expansion, and customer concentration still need continued verification.
Key assumptions. To bring this company back into a buyable range in the future, I think at least the following conditions must be met: new projects ramp smoothly; prices of mature products such as nitrogen trifluoride do not continue to deteriorate; the share of high-end new products keeps rising; Owner Earnings increases meaningfully and eventually absorbs total capex; related-party transactions do not worsen; and capital allocation returns to a per-share value focus, rather than a scale focus.
Fair buy price. Based on conservative and neutral valuation plus a margin of safety, the ideal buy range is 12-20 yuan. 20-30 yuan would enter the range where the business is understandable and a small holding could be acceptable. Above 45 yuan I would consider it clearly overvalued. The current price of about 252 yuan is clearly in a state of severe detachment from any margin of safety.
Target holding period. If the price returns to a reasonable range in the future, this kind of business should be observed and held on a 5-10 year or longer basis, because qualification, new product introduction, capacity ramp-up, and domestic substitution are not one- or two-year stories. But buying at the current price is not suitable for any mindset that equates "long-term holding" with comfort.
Expected annualized return. If bought today at the current price, and based on the Owner Earnings and exit-multiple model I used in the valuation section, the next ten years would roughly fall into the following range: about -22%/year in the conservative scenario, about -17%/year in the neutral scenario, and about -11%/year in the optimistic scenario. These are estimates based on public financial data, net cash, and normalized exit multiples, not short-term share-price forecasts. But they are enough to show that even a good company can become a poor investment if bought too expensively.
Maximum loss risk. If market sentiment fades and valuation returns to a still-not-cheap high-growth materials-stock range, a share-price decline to 40-100 yuan is not unimaginable. If it moves more extremely toward book value and asset-method levels, theoretically deeper drawdowns also exist. Therefore, starting from the current price, the risk of more than 80% permanent capital loss is not alarmist. This does not mean the business will fail. It means you may have paid a price far above intrinsic value for what is actually a decent business.
Tracking indicators. Going forward, I would focus on: gross margins of electronic specialty gases and triflic acid series products; ASP and volume of nitrogen trifluoride/tungsten hexafluoride; utilization and commissioning pace of new projects in Hohhot, Shanghai, and elsewhere; whether Owner Earnings and strict free cash flow turn sustainably positive; whether ROE/rough ROIC recovers; overseas revenue and new-product introduction speed; changes in accounts receivable, inventory, and accounts payable; related-party transaction balances with CSSC Finance and the controlling shareholder; whether large financing or refinancing is added; and safety/environmental incidents.
Signals that would trigger reassessment. If any of the following occur, I would immediately revisit the thesis: core product prices continue to decline without volume growth offsetting the impact; new expansion projects still fail to contribute enough profit within three years; free cash flow remains negative for a long time after the capex peak passes; related-party transactions and group fund dealings rise significantly; a major safety or environmental incident occurs; or, conversely, the share price falls sharply while fundamentals continue to improve. The former would overturn the "good company" judgment, while the latter would change the "bad price" judgment.
Final recommendation. For an investor with an investment horizon of more than 10 years and a balanced, conservative risk preference, my restrained conclusion is: do not buy now. It is fine to place the company on a high-quality watchlist, but do not let "domestic substitution," "state-owned leader," "hot sector," or recent share-price strength obscure the most important fact: you are not buying a story, but the cash flow you can receive over the next ten years. Peric Special Gases deserves continued study; Peric Special Gases' current share price does not deserve long-term capital today.
This report is based on public information and does not constitute investment advice. Markets carry risk; invest with caution.
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