Incident: The company released its report for the third quarter of '22. The company achieved operating income of 35.5 billion yuan in the first three quarters of '22, +43% year on year, and achieved net profit of 513 million yuan, +7% year on year. Among them, Q3 achieved revenue of 11.4 billion yuan in a single quarter, +83.2% year on year, -15.5% month on month, and achieved net profit of 102 million yuan over the previous year, an increase of 190 million yuan over the previous year and -94.5% over the previous year.
Comment:
Oil prices fell and inventory losses increased, and the company's Q3 performance was under pressure. The average price of polyethylene, the company's main product in Q3 2022, was 8142 yuan/ton, -3% year on year, -10% month on month; the average price of urea was 2,528 yuan/ton, -6% year on year, 19% month on month; the average price of diesel was 8,592 yuan/ton, +33% year on year, -1% month on month; average price of polypropylene was 8201 yuan/ton, -4% year on year, -6.5% month on month. The average price of Brent crude oil futures for Q3 2022 was 98 US dollars/barrel, -12% from the previous month. The sharp drop in oil prices led to an increase in the loss of the company's crude oil inventory, and the company's Q3 performance declined month-on-month under pressure.
Jointly with Saudi Aramco, the group's refining and chemical project is expected to advance rapidly: the crude oil processing capacity of the project is 300,000 barrels per day (equivalent to 15 million tons/year) and is expected to be put into operation in 2024. In addition, Saudi Aramco will supply up to 210,000 barrels of crude oil per day (equivalent to 10 million tons/year) of crude oil for the project to guarantee the supply of crude oil for the project. As the only listed company in the petrochemical sector under the China Ordnance Industry Group and one of the largest domestic integrated comprehensive petrochemical companies for refining and chemicals, Huajin Co., Ltd. has obvious advantages in production scale and vertical integration. The Saudi Aramco refining and chemical integration project is shared by North Huajin Chemical Group, a holding subsidiary of the group company Military Engineering Group. Huajin Co., Ltd. is expected to participate in the construction of the project in due course. At that time, the competitiveness of the company's petrochemical and fine chemical sectors will be significantly enhanced.
Currently, PB is less than 1 times, and there is room for valuation repair: from the perspective of PB valuation, the valuation level of state-owned chemical companies has always been lower than the chemical industry as a whole, and the current valuation level of listed state-owned chemical companies, especially listed chemical central enterprises, is at the bottom of history. The company's stock price has continued to fall since the second half of 2017, and PB-MRQ fell below 1.0 at the end of May 2018. The company's stock price fell back and entered a stable period after a slight rebound in early 2019. Although the company's stock price has risen since mid-2020, the overall PB valuation is still at the bottom. As of October 27, 2022, the company's PB-MRQ was only 0.79 times. As large-scale refining and chemical integration projects continue to advance in Northeast China, the company's growth space is gradually opening up, and future valuations are expected to be repaired.
Profit forecast, valuation and rating: The company's profitability is under pressure in the context of high oil prices, so we lowered the company's 22-24 profit forecast. The company's net profit for 2022-2024 is estimated to be 8.26 (10% reduction) /9.45 (13% reduction) /10.62 billion yuan (13% reduction), respectively, equivalent to 0.52/0.59/0.66 yuan respectively. The group's refining and chemical project is expected to advance rapidly. The company is expected to participate in the construction of the project in due course, and growth is expected, so it will maintain the “buy” rating.
Risk warning: There is a risk that raw material prices will fluctuate, and the pace of new production capacity investment will fall short of expectations.
