Event: On April 28, 2023, Sinochem International released its 2022 annual report and the first quarterly report for 2023:2022 achieved operating income of 87.449 billion yuan, +8.25% year on year; achieved net profit of 1,311 million yuan, -39.15% year on year; achieved net profit of 833 million yuan after deduction, +53.42% year on year; weighted average return on net assets was 10.36%, down 7.25pct from the previous year. The gross profit margin of sales was 8.66%, down 1.47 pct from the previous year; the net profit margin on sales was 2.49%, down 5.65 pct from the previous year; net cash flow from operating activities was 3.406 billion yuan.
Q4 2022 achieved revenue of 21,510 million yuan, -3.72% year on year, -0.08% month on month; net profit of the mother was 21 million yuan, -99.05% year on year and -93.43% month on month.
The weighted average return on net assets was 0.13%, up 1.93 pct year over year and down 2.31 pct month on month. The gross profit margin was 6.19%, down 2.19 pct year on year and 2.59 pct on month; net sales margin was 0.69%, down 0.94 pct year on year, down 1.63 pct from month on month.
Q1 2023 achieved revenue of 14.766 billion yuan, -21.64% year on year and -31.35% month on month; net profit of the mother was 113 million yuan, -71.33% year on year and +445.17% month on month.
The weighted average return on net assets was 0.60%, down 2.71 pct year on year, up 0.47 pct from month on month; gross profit margin on sales was 7.81%, down 2.86 pct year on year, down 1.62 pct; net sales margin was 1.31%, down 2.11 pct year on year, up 0.62 pct month on month.
Comment:
There was a steady increase in net profit after deducting non-net profit in 2022. A number of segments emerged, and upstream raw materials increased significantly throughout 2022, and demand for related chemicals shrank to a certain extent under macroeconomic influence. In 2022, the company achieved operating income of 87.449 billion yuan, +8.25% year on year; achieved net profit of 1,311 million yuan, or -39.15% year on year; achieved net profit of 833 million yuan after deduction, +53.42% year on year. In June 2021, Yangnong Co., Ltd. announced that the 2022 results, excluding Yangnong's equity sales revenue and Yangnong's operating data, showed a significant increase. Among them, revenue increased by about 18%, net profit increased by about 159%, and net profit increased by about 93% after deduction. The company continues to make efforts on the sales side and production side. Sales side: Through in-depth market research and rapid strategy adjustment, active development of international markets, compensating for the adverse effects of insufficient domestic demand, stabilizing business performance in a turbulent market environment, sales of key products increased 42% year-on-year; production side:
Faced with the impact of the domestic environment and current situation, the company actively optimized production processes and continued technical reform. Overall production and operation were stable, output continued to grow, and production capacity load and energy consumption levels of key equipment increased steadily.
The 2023Q1 performance improved month-on-month. Optimistic about the long-term development of the company's new chemical materials, the 2023 Q1 achieved revenue of 14.766 billion yuan, -21.64% year-on-year, -31.35% month-on-month. Under the high base of the same period last year, performance declined slightly; the net profit of Guimo was 113 million yuan, -71.33% year on year, +445.17% month on month. It is speculated that prices of the company's main products have been under downward pressure since Q4 2022, and Q1 in 2023 continues to decline. Among them, prices of chlorobenzene products have rebounded, with average sales prices reaching 19947.47 yuan/ton, month-on-month +68.28%, which led to a recovery in first-quarter results. The gross profit margin of Q1 sales in 2023 was 7.81%, a year-on-year decrease of 2.86pct and a month-on-month decrease of 1.62pct, mainly due to the decline in the company's overall product prices. Asset impairment losses amounted to 98 million yuan, a decrease of 398 million yuan over the previous month. Presumably, this was a significant improvement in the impairment of the company's inventory. The profit and loss rate from changes in fair value and the cost rate for the period remained generally stable.
Since late April, the epoxy resin market has picked up, the upstream raw material market has improved, the price of a single ton of bisphenol A has exceeded 10,000, and the cost side supports the price of epoxy resin has strengthened. The main product market is expected to recover. Combined with the subsequent launch of many of the company's projects, it will jointly support the steady rise in the company's performance center. At present, the carbon-3 project has entered the final sprint stage. It is expected that the full line will be completed and production capacity climbed throughout 2023. The 192,000 tons/year accelerator project is expected to be put into operation in Q2. The production and sales volume and share of high-end products for the aramid and nylon 66 projects have reached a new level. We are optimistic about the long-term development of the company's new chemical materials.
The carbon three project has entered the final sprint stage. The advantages of integrating the epoxy resin industry chain highlight that China's wind power industry has ushered in rapid development, leading to a huge increase in demand for composite resins. Furthermore, global trends such as next-generation communication technology RF base stations and related products, water-transfer oil coatings, and building decoration will also drive steady growth in demand for epoxy resins. The company currently has an epoxy resin production capacity of 350,000 tons/year. As of 2023Q1, the company's six major plants, including carbon three ECH, caustic soda, hydrogen peroxide, epoxy resin, bisphenol A, and phenol acetone, have been successfully completed and put into operation. The PDH and PO units have begun equipment installation one after another, entering the final sprint stage. The capacity utilization rate for the full year of 2023 is expected to reach 60-70% of the design capacity. The company is committed to building the world's leading and industry's only “PDH-propylene-phenolacetone & bisphenol A/epoxychloropropane-epoxy resin” integrated whole industry chain, which will further consolidate the competitive advantage of the epoxy resin industry chain.
The “addition and subtraction method” of rubber-related business is carried out in parallel to enhance the company's core competitiveness 1) The company's natural rubber business covers the entire natural rubber industry chain from planting, production and processing to trade and distribution. The global market share has exceeded 12%, and is in a leading position in the world.
On November 16, 2022, the company disclosed the “Notice Concerning the Sale of Assets by Wholly Owned Subsidiaries” and announced that it intends to transfer 36.00% of its shares in Hesheng Group, its natural rubber business platform company. This marks another important step in the company's strategy to focus on the fine chemical industry with new chemical materials as the core.
2) The company has now developed into the world's leading supplier of rubber additives. In May 2022, Thailand's anti-aging agent project with an annual output of 25,000 tons was officially put into operation, further enhancing the company's industrial position and competitiveness in the additive field. Based on the deep foundation of the rubber anti-aging agent industry, the company relies on independent innovation to lay out the promoter industry. The 192,000 tons/year accelerator project in Lianyungang Shengao is under construction. It is expected to be put into operation in 2023Q, and production capacity will start climbing in the second half of the year.
The share of high-end aramid products is increasing, and the company's profit center is expected to rise. Aramid is one of the world's top three high-performance fibers. Currently, the global production capacity of aramid is 90,000 tons, mainly concentrated in the three companies DuPont, Teijin, and Colon. Domestic companies occupy a low proportion, and the operating rate of some domestic enterprises is very low due to immature technology. China is a potentially large producer of aramid, but demand and market are seriously mismatched. The company currently has a production capacity of 55,500 tons/year for aramid, ranking in the leading position in the country. In 2022, the company made a major breakthrough in the quality and stability of the company's aramid high-strength high-strength high-strength products. The performance and superior yield reached the industry-leading level. Currently, it has obtained certification from leading international customers in the fields of tire rubber, optical cables, etc., the sales share of high-strength high-strength products has gradually increased, and the company's market position in the aramid industry continues to improve.
The hexanediamine-nylon 66 industry chain has broken through technical barriers, and the engineering plastics industry landscape continues to expand. Nylon 66 has long been constrained by the foreign monopoly and supply bottleneck of adiponitrile. Through independent technological breakthroughs, the company successfully developed a process for producing hexanediamine without going through adipitrile, and directly prepared hexanediamine through a two-step reaction through upstream bulk raw materials, which is expected to change the domestic nylon 66 pattern. At present, 40,000 tons of nylon 66 and 25,000 tons of hexanediamine have been completed and put into operation at the Ningxia Zhongwei base, forming the first full-process process technology for “catalyst preparation - hexanediamine synthesis - nylon 66 polymerization” in China. The company simultaneously promoted upstream and downstream product portfolio sales and customer certification, and production and sales increased rapidly, helping to create new growth points for performance. In 2023, the company will further increase the production capacity of nylon 66 from 40,000 tons/year to 80,000 tons/year.
In August 2022, Sinochem International's Yangzhou ABS modified materials plant opened and put into operation, further broadening the company's industrial footprint in the field of engineering plastics.
Laying out the three yuan cathode plus lithium battery recycling strategy to the emerging industry, the first-mover advantage helped boost performance and achieve revenue of 832 million yuan in the company's strategic emerging business in 2022, an increase of 156.48% over the previous year. The ternary cathode material has high energy density and good low temperature properties. At present, the company has formed a production capacity of 10,000 tons/year of ternary cathode materials, and the production line is operating steadily. The future plan is to expand production capacity of ternary materials to more than 50,000 tons and support the construction of related material production capacity. Furthermore, lithium battery recycling, as a key link in the future closed loop of the industrial chain and cost reduction, is currently in the initial development stage. The company built a 3,000-ton lithium battery recycling pilot line and actively laid out recycling qualifications and channels to help seize first-mover advantage in industry competition.
Profit forecast: Taking into account multiple factors such as the company's 2022 and 2023 Q1 business situation, current market environment, main product sentiment, etc., based on the principle of prudence, we moderately lowered the company's profit forecast. It is estimated that the company's 2023/2024/2025 revenue will be 587/614/66.5 billion yuan respectively, and the net profit of the company is 999/1,64/2.13 billion yuan, corresponding to PE22.8/13.8/10.6 times, maintaining the “buy” rating.
Risk warning: Project commissioning progress falls short of expectations, technology development falls short of expectations, downstream demand expansion and market development falls short of expectations, raw material prices fluctuate greatly, industry competition intensifies, the international situation is turbulent, and industry policy changes drastically.