3Q23 performance is lower than we expected.
The company announced 1-3Q23: operating income 101.5 billion yuan, year-on-year-18%; return to the mother net profit of 210 million yuan, year-on-year-84%, lower than our expectations, mainly: 1) factory implementation of technical transformation, management costs year-on-year + 48% + 42%) financial expenses year-on-year.
Among them, 3Q23's single-quarter income was 37.2 billion yuan, an increase of-14% over the same period last year, and its net profit was 130 million yuan, turning a loss into a profit.
From a sub-plate point of view, we judge 3Q23: 1) Brunei Refining and Chemical Project to achieve a net profit of about 140 million yuan, slightly lower than our expectations; 2) PTA and bottle chips a total loss of 160 million yuan; 3) polyester loss of 50 million yuan; 4) China Zheshang Bank contributed investment income of 150 million yuan.
Trend of development
Filament production capacity is put into production at the end, 2024 is expected to further improve the bearing. Supply side: according to our statistics, 1-3Q23 industry newly increased silk production capacity of 4.15 million tons, of which Tongkun share production capacity released more; 4Q23 industry still has 1.35 million tons of production capacity to be put into operation, the supply side is under pressure. However, leading companies have slowed their expansion in 2024-2025, and the growth rate of industry supply is likely to decline sharply. Demand side: downstream loom production and sales rate is still at a high level, inventory remains low; price difference: 3Q23 polyester filament POY/FDY/DTY price difference month-on-month ratio of-1.3%, respectively. We expect that the prosperity of polyester filament will be further improved after 2024.
4Q23 refinery price spreads fall back at high levels. According to Bloomberg, as of October 26, 2023, the price difference of refined oil products in Singapore was about 160 yuan / ton (a barometer of refinery profits in Southeast Asia). Compared with the end of the third quarter (September 30, 2023) and the end of last year (December 31, 2022), the price difference fell by 555.57% respectively. After the 3Q peak season, the superimposed global economy may weaken slightly, and the price gap of oil products in Southeast Asia may fall month-on-month during the 4Q23 period.
Profit forecast and valuation
Due to the lower-than-expected prosperity of the 1-3Q23 refining and chemical industry, we respectively reduced the 2023 Universe net profit for 2024 by 73% to 580 million yuan. The current share price corresponds to a price-to-earnings ratio of 34 times 2024. To maintain the outperforming industry rating, taking into account the adjustment of earnings forecasts and the market valuation center, we lower our target price by 9% to 7.3 yuan, corresponding to 35 times 2024 price-to-earnings ratio, which has 3% upside compared to the current stock price.
Risk
Oil prices are falling rapidly and new project approvals are not as expected.