Description of the event
On August 30, Sinochem International released its 2023 semi-annual report, achieving operating income of 29.021 billion yuan, a year-on-year decrease of 34.66%; realized net profit of 64 million yuan, a year-on-year decrease of 116.83%; realized net profit of non-attributable net profit of -562 million yuan, a year-on-year decrease of 164.75%; and achieved basic earnings per share of -0.05 yuan/share. Among them, we achieved operating income of 14.255 billion yuan in the second quarter, down 44.25% year on year and 3.46% month on month; realized net profit of 277 million yuan, down 147.76% year on year and 345.13% month on month; realized net profit after deducting non-return income of 506 million yuan, down 191.50% year on year and 803.57% month on month.
Earnings in the second quarter were under pressure, and production and sales rates increased month-on-month
The overall profit of core products in the second quarter was under pressure. In 2023H1, the company's revenue and profit declined sharply, mainly due to poor recovery in overall demand, which led to a significant drop in product prices and gross margin. According to the business data disclosed by the company, the sales unit prices of chlorobenzene, chloralkali, resins, and rubber anti-aging agents in the second quarter were -5.16%/-15.28%/-7.12%/-8.79%, respectively. The comprehensive gross margin for the second quarter was 4.05%, year-on-year/month-on-month -5.10 pct/-3.76 pct.
By exchanging volume for price, market share has further increased. In the second quarter, product price reductions and the volume of new projects led to a significant increase in the company's production and sales volume over month. The total product production/sales volume in a single quarter reached 406615/304981 tons, respectively, +1.26%/+12.93% over the previous quarter. Among them, chlorobenzene products were 64704/53681 tons, +6.81%/+2.74% month-on-month; chlor-alkali 233740/141643 tons, respectively -4.93%/+20.79%; resin products 71990/69002 tons, +31.47%/+20.20% month-on-month; and 36181/40655 tons of rubber anti-aging agents, -10.33%/-5.77%. In the second half of 2023, we believe demand for major products is expected to improve season by quarter, and has now reached a fundamental inflection point.
Improve quality, increase efficiency, fine management, and actively face industry difficulties
In the first half of 2023, the chemical industry faced difficulties such as overcapacity and insufficient downstream demand. Prices of the company's key products have continued to drop, falling to a historic low in the past 5 years. The company has taken a series of measures to address serious challenges, focusing on improving quality and efficiency and building an excellent operating system. In the first half of the year, the working capital turnover rate reached 21.8 times, an increase of 79% over the previous year. In particular, the turnover of items such as inventory and accounts payable has improved markedly, and operational efficiency has been greatly improved.
Investment advice
As demand for downstream products fell beyond expectations, we revised our company's performance forecast. We expect the company to achieve net profit of 5.61, 12.58, and 1,687 billion yuan respectively in 2023-2025 (values before 2023-2025 were 977, 15.17, and 1,996 billion yuan), corresponding to PE 33.10, 14.77 and 11.01 times, maintaining the “buy” rating.
Risk warning
(1) Various risks caused by price fluctuations of raw materials and main products;
(2) Production safety risks;
(3) Environmental protection risks;
(4) Project commissioning progress fell short of expectations;
(5) Macroeconomic downturn.