3Q23 performance is in line with market expectations
The company announced 1-3Q23 results: operating income of 69.9 billion yuan, +21% year on year; net profit to parent - 700 million yuan, a year-on-year loss of 1.3 billion yuan, in line with market expectations.
In 3Q23, operating income was 24.9 billion yuan, +110% year-on-year; net profit was 270 million yuan, which turned a loss into a profit year on year, mainly due to the increase in production and sales of petrochemical products, a decrease in unit costs, and a year-on-year increase in gross profit. 3Q23's gasoline production was 2.49 million tons, +6%; diesel production was 2.69 million tons, -16%; ethylene production was 530,000 tons, -2% month on month.
Development trends
Chemical 3Q23 improved month-on-month. We judge that 1-3Q23 demand in the chemical industry is still low, the profit situation in various business sectors is still average, and olefin profit remains low. The average price difference of 3Q23 PE (polyethylene) - naphtha remains low. The average price difference between 3Q23 PE (polyethylene) and naphtha is 2,814 yuan/ton, up 13% from the previous month, and is at the 5-year average level (5-year average is 2,800 yuan/ton); aromatic profit 3Q23 improved month-on-month (of which the PX 3Q23 price difference increased 18% month-on-month to 1,181 yuan/ton, which is far higher than the 5-year average of 51 yuan/ton). Overall, we think the chemical business in 3Q23 may have increased month-on-month compared to 2Q23, but overall olefins are still under pressure. Furthermore, we expect the 4Q23 downstream chemical season to gradually end, and the olefin price spread will narrow slightly; aromatic hydrocarbons will fall month-on-month, but remain high. Looking ahead, we judge that the overall chemical profit in 2024 is relatively lackluster. As new olefin production capacity continues to be invested, it is difficult for profits to improve significantly; while the end of investment in aromatic hydrocarbon production capacity, it is a year-on-year improvement compared to 2023.
Refining 3Q23 improved month-on-month. 3Q23 The refining business improved, about 400 million yuan. Our judgment is mainly that 1) imported crude oil varieties have been optimized; 2) domestic aviation kerosene demand is expected to increase significantly in 2023:
The 1-3Q23 aviation kerosene price difference is 3095 yuan/ton, an increase of 20% over the previous year, and 1-3Q23 international passenger flights have only recovered to about 50% before the epidemic. The aviation kerosene business is expected to achieve a sharp rise in volume and price. 3) Inventory revenue is mainly due to the average monthly increase in crude oil prices of about 7 US dollars/barrel this quarter.
New materials projects are progressing steadily over the next 2-3 years. The company is speeding up the first-stage production standards for 48K large wire bundle carbon fiber, and expects the production capacity of 24,000 tons/year of raw wire and 12,000 tons/year of large wire bundle carbon fiber to be completed and put into operation in 2024. The 250,000 tons/year thermoplastic elastomer project and the 300,000 tons/year ethylene acetate project in Shanghai are also progressing steadily at the same time. We believe that as new materials projects continue to be put into production, we can expect to contribute incremental profits.
Profit forecasting and valuation
Considering that demand for chemicals fell short of expectations, we lowered our net profit for 2023/24 by 75%/40% to $100/370 million, respectively. Considering the valuation increase brought to the company by the new carbon fiber materials business, we lowered the A/H target price by 6%/8% to HK$3.1/1.2, corresponding to 1.26/0.42x 2024 net market margin and 7%/19% upward space, maintaining the “outperforming industry” rating for A/H shares. A/H shares are currently trading at 1.2/0.4x 2024 net market margin.
risks
International oil prices have fluctuated greatly, and carbon fiber projects have fallen short of expectations.