Event

The company released its annual report for 2017. during the reporting period, the company announced that its operating income reached 11.502 billion yuan, an increase of 17.47% over the same period last year, and the net profit attributed to shareholders of listed companies was 136 million yuan, an increase of 96 million yuan over the same period last year, an increase of 241.25% over the same period last year. Deducting non-homing net profit-31 million, down 88.45% from the same period last year Of this total, Q4 realized operating income of 4.008 billion yuan, an increase of 35.54% over the same period last year, and realized a net profit of 195 million yuan, an increase of 382.37% over the same period last year, deducting 26 million yuan of non-return net profit, an increase of 46 million over the same period last year, from negative to positive.

Brief comment

The petrochemical industry is in a good situation, and the company's revenue is growing steadily: the Q1-Q4 net profit of the company is 0.27,0.26,0.60 and 195 million yuan respectively, of which the company's performance is the highest in the fourth quarter, mainly due to the transfer of 30 per cent equity in Zhejiang Yaojiang Cultural Plaza Investment and Development Co., Ltd. (the impact amount is about 190 million yuan). During the reporting period, the petrochemical industry maintained a good development trend, the production capacity and efficiency of the industry increased steadily, and the company's oil and gas business made steady progress, with oil and gas sales revenue of 5.405 billion for the whole year, an increase of 16.16% over the same period last year. The operating capacity of new materials and devices continued to improve, and Ningbo Haiyue achieved sales revenue of 5.634 billion yuan, an increase of 6.52% over the same period last year. The company completed the merger and reorganization of northern oil, and the synergy of warehousing, trade and petrochemical production was further strengthened. In terms of expenses, the company's current management expenses increased by 98.71% to 440 million, mainly due to the increase in triennial overhaul expenses and R & D expenses of the subsidiary Ningbo Haiyue; the financial expenses decreased by 56.72% to 175 million. Ningbo Haiyue generated exchange gains due to RMB appreciation in the current period, and exchange losses due to RMB depreciation in the same period last year.

With the expansion of the PDH price gap, Ningbo Haiyue is expected to reverse its losses in 18 years, and the second phase is already planned, and the production cost will be greatly reduced after it is put into production: the average price difference of PDH from January to March 2018 is US $427 / ton, which is 35% higher than the annual average of US $317 / ton in 2017. the downstream demand for propylene is growing rapidly, and the consumption growth rate on the table in 2016 is 13%. The rise in oil prices is good for PDH to produce propylene. With the stricter and stricter environmental protection and the strict implementation of the sixth national standards, it is expected to improve the demand for isooctane. On the whole, Ningbo Haiyue is expected to turn losses into profits in 18 years.

Ningbo Phase I (600000 tons of ethylene and 600000 tons of isooctane) has been put into production, and Ningbo Phase II is already under planning and is expected to extend and develop in the C 3 C 4 deep processing industry chain. after the landing of the project, the scale advantage is obvious and the cost will be greatly reduced.

Northern Oil's 18-year performance commitment of 100 million yuan, completely relative to 17 years of new profits: November 22, 2017, 100% equity transfer of Northern Oil to the company, wholly-owned subsidiary Northern Oil's main business is warehousing and trading. The warehousing business contributed about half of Northern Oil's profits, and the restructuring contributed to a significant improvement in the capital flow of the trade business. The committed achievements in 2017, 2018 and 19 were 0.68,1.0 and 126 million yuan respectively. Northern Petroleum achieved remarkable performance in 2017. the turnover of oil products was 9.3 million tons (an increase of 38.4% over the same period last year), and the trade volume was 2 million tons (an increase of 194% over the same period last year). The realized income was 11.069 billion yuan, an increase of 293% over the same period last year; and the net profit was 94 million yuan, an increase of 244% over the same period last year. With the acceleration of warehouse turnover and trade volume, the performance in 2018 is worth looking forward to.

Performance flexibility: subsidiary Ningbo Haiyue has a total propylene production capacity of 600000 tons, and the company participates in 51%. For every 1000 yuan / ton price difference, the net profit of return to the mother increases by 222 million yuan, and EPS thickens by 0.48 yuan.

Profit forecast: the company is expected to return to the parent net profit of 2.96 and 350 million yuan in 2018 and 2019, EPS 0.77, 0.91 yuan, PE 11X, 10X, maintaining the "overweight" rating.