1H23 performance meets market expectations

The company announced 1H23 results: revenue of 44.9 billion yuan, down 2% from the same period last year; return to the mother net profit of-990 million yuan, year-on-year loss increased by 127%, in line with market expectations.

2Q23's revenue was 23 billion yuan, up 15% from the same period last year; its net profit was-830 million yuan, and its loss increased by 27% over the same period last year. 2Q23 produced 1.605 million tons of gasoline, up 11 percent over the same period last year; diesel produced 1.845 million tons, up 41 percent; aviation kerosene output 816000 tons, up 107 percent; and ethylene output 357000 tons, up 1.1 percent over the same period last year.

Trend of development

Oil refining is the main source of profit, aviation coal may contribute to future performance increment. We believe that the oil refining business is expected to become the company's main source of profit in 2023, mainly due to 1). In 2023, two batches of refined oil export quotas were issued, totaling 27.99 million tons, an increase of 60% over the same period last year. The company's export quota in 2023 is expected to increase significantly compared with the same period last year (quota given by China Petroleum & Chemical Corp to the company) 2) domestic refined oil demand will return to the year-on-year expansion range in 2023: the year-on-year growth rate will be about 6.2% to 1374 million barrels per day (forecast by CICC Group); 3) according to the data of the Civil Aviation Administration, as of 1H23, international passenger flights have only returned to 44% of what they were before the epidemic, but the aviation coal price gap has returned to the 2019 profit level, and there is more room for aviation kerosene increment.

2H23 chemical business is under pressure as a whole. We judge that the demand of the 1H23 chemical industry is still low, and the performance of the synthetic resin and plastics and synthetic fiber sectors will remain at a loss. Looking forward, we judge that 2H23 only PX and pure benzene profit is better, 2023 chemical business or overall pressure.

The new material project will advance steadily in the next 2-3 years. The company accelerates the production of 48K large tow carbon fiber in one stage, and estimates that the production capacity of 24,000 tons / year raw filament and 120,000 tons / year large tow carbon fiber is expected to be completed and put into production in 2024. Shanghai key projects 250,000 tons / year thermoplastic elastomer and 300,000 tons / year vinyl acetate projects are also steadily advancing at the same time. We believe that with the continuous production of new material projects, it is expected to contribute incremental profits.

Profit forecast and valuation

Taking into account the lower-than-expected chemical demand, we respectively reduced the 24-year net profit of 2023 Universe by 61% to 386.2 million yuan. Taking into account the valuation improvement brought to the company by the carbon fiber new materials business, we lowered the target price of Ahammer H by 18% to 3.3 yuan / HK $1.3, corresponding to the market-to-net ratio of 1.32% 0.43 x 2024 and the 14% upside space of 7% Citrus. Maintain the "outperform industry" rating of A & amp H shares. A Big H shares are currently traded at 1.2/0.4x2024 's annual net market ratio.

Risk

International oil prices fluctuated sharply, and the promotion of carbon fiber projects fell short of expectations.