Event: on August 28, 2022, the company released its semi-annual report for 2022. In the first half of 2022, the company achieved operating income of 16.405 billion yuan, down 7.57% from the same period last year; net profit from home was 901 million yuan, down 38.66% from the same period last year; and net profit from non-return was 891 million yuan, down 38.53% from the same period last year.

The sharp decline in 22Q2 performance, shrinking industry demand and declining profitability are the main reasons. 22Q2, the company achieved operating income of 8.478 billion yuan, down 6.31% from the same period last year; net profit from home was 345 million yuan, down 56.95% from the same period last year; and the net profit rate of sales was 3.96%, down 5.25pct from the same period last year. Under the catalysis of geopolitics, international oil and commodity prices have risen sharply. 22Q2's gross profit margin is only 9.80%, down 5.84pct from a year earlier and 2.00pct from a month earlier.

With the expansion of production and income of methyl ethyl ketone and maleic anhydride, the epidemic affected the reduction of supply chain business. In terms of different industries, the operating income of 22Q2 and methyl ethyl ketone was 1.978 billion yuan, an increase of 86.38% over the same period last year, and the gross profit margin was 41.46%, an increase of 13.17pct over the same period last year. Maleic anhydride chemicals achieved operating income of 5.991 billion yuan, an increase of 55.92% over the same period last year, with a gross profit margin of 8.70%, down 12.70pct from the same period last year. The income growth of methyl ethyl ketone and maleic anhydride chemical industry is mainly due to the increase in production capacity and the rise in the price of raw materials. The operating income of other chemical products reached 1.292 billion yuan, down 46.41% from the same period last year, mainly due to the decline in the price of epidemic products, with the business gross profit margin of 16.21%, down 29.54% from the same period last year; supply chain management operating income of 6.959 billion yuan, down 32.79% from the same period last year, mainly due to the epidemic leading to a decrease in supply chain business volume, with a supply chain business gross profit margin of 2.35%, an increase of 0.35pct over the same period last year.

C4 industrial chain continues to deepen, consolidating the leading position of methyl ethyl ketone and maleic anhydride. (1) Methyl ethyl ketone: the expanded 80,000 tons / year methyl ethyl ketone project was completed and put into production in the first half of 2022. Up to now, the production capacity of methyl ethyl ketone exceeds 260,000 tons / year, and it is the largest methyl ethyl ketone production enterprise in China. The share of domestic production and sales is about 50%. (2) maleic anhydride: under the background of domestic "plastic restriction order", the production of PBS, PBAT and other degradable plastic products manufacturers will gradually increase, which will lead to the growth of the demand for maleic anhydride of upstream raw materials. At present, the first phase of the company's 100,000 tons / year maleic anhydride expansion project has been completed and put into production. After the second phase has been successfully put into production, the company's total production capacity of maleic anhydride will exceed 400,000 tons / year, with strong scale advantages. (3) MMA and PMMA: the company already has 200,000 tons / year MMA production capacity, and the 100,000 tons / year PMMA project is also under construction. After putting into production, the company will form an integrated "isobutene-MMA-PMMA" integrated industrial chain.

Lay out the C3 industrial chain and add new profit points. The company actively introduces advanced technology to build 700,000 tons / year propane dehydrogenation project and 300,000 tons / year epoxy propane project, and announced in April 2022 that it plans to build 80,000 tons / year acrylic acid and 60,000 tons / year butyl acrylate project. in order to further stretch the industrial dimension, it is expected to form a new profit growth point in the future. At present, the 700,000 t / a propane dehydrogenation project has been fully put into production.

Investment suggestion: it is estimated that the return net profit of the company from 2022 to 2024 is 16.15max 21.39 / 2.522 billion yuan respectively, the EPS is 0.57max 0.75exp 0.89 yuan per share, and the PE corresponding to the closing price on August 29, 2022 is 14, 10 and 9 times respectively. Crude oil prices remained high in 2022, and the company's downstream business was greatly affected, so it downgraded its rating and gave it a "cautious recommendation" rating.

Risk tips: the risk of raw material price fluctuations; the risk of the impact of epidemic disturbance on downstream demand; the risk of slow release of new capacity.