Incidents:
On October 28, 2023, Sinochem International released its three-quarter report for 2023: in the first three quarters of 2023, the company achieved operating income of 43,014 billion yuan, a year-on-year decrease of -34.77%; realized net profit attributable to shareholders of listed companies - 540 million yuan, a year-on-year decrease of 141.84%; and the weighted average return on net assets was -3.20%, down 13.87 percentage points from the previous year. Gross profit margin was 5.26%, down 4.20 percentage points year on year; net profit margin on sales was -1.14%, down 4.22 percentage points year on year.
Among them, Q3 in 2023 achieved revenue of 13.993 billion yuan, a year-on-year decrease of -1.84%; net profit of -376 million yuan, -219.10% year-on-year, a decrease of 99 million yuan; ROE was -2.17%, a decrease of 4.61 percentage points over the previous year and a decrease of 0.66 percentage points over the previous year. The gross profit margin was 3.80%, down 4.98 percentage points from the previous year, down 0.25 percentage points from the previous year; the net profit margin on sales was -2.55%, down 4.87 percentage points from the previous year, down 0.24 percentage points from the previous year.
Investment highlights:
Prices of main products continued to decline, and the company's Q3 performance was still under pressure. The company achieved operating income of 43,014 billion yuan in the first three quarters, a year-on-year decrease of -34.77%; net profit of 540 million yuan, a year-on-year decrease of 141.84%. On the one hand, the year-on-year decline in the company's operating income was affected by the market environment in the chemical industry. The company's main chemical products continued to decline, and the competitive pattern intensified; on the other hand, it was compounded by the loss of control caused by the company's disposal of part of Hesheng's shares held in February 2023. The year-on-year decline in net profit of the company was due, on the one hand, to the weak situation in the chemical industry as a whole in 2023, and competition between product supply and demand intensified; on the other hand, it was compounded by factors such as the decline in the production capacity of the company's key subsidiaries. Looking at specific products, according to the company announcement, the average prices of the company's main products chlorobenzene products, chlor-alkali products, resin products, and rubber anti-aging agents in the first three quarters were -24.13%, -29.06%, -39.95%, and -27.05% year-on-year, respectively. The obvious decline in the price of the main products put pressure on the company's performance.
Looking at Q3 in a single quarter, the company achieved revenue of 13.993 billion yuan, -1.84% over the previous year; net profit of the mother was 376 million yuan, a decrease of 99 million yuan over the previous month. Among them, the company's Q3 gross profit was -393 million yuan, a decrease of 167 million yuan, which is the main reason for the month-on-month decline in the company's Q3 performance; the company's Q3 sales expenses, management expenses, financial expenses, and R&D expenses were +0.16/+0.10/+0.8/+0.12 billion yuan month-on-month, respectively, and the company's period expenses also increased to a certain extent.
The month-on-month decline in the company's gross profit was mainly due to the month-on-month decline in the prices of its main products. According to the company announcement, the average prices of the company's Q3 chlorobenzene products, chlor-alkali products, resin products, and rubber anti-aging agents were -9.05%, +8.95%, -4.94%, and -19.65% month-on-month, respectively. Prices of the company's core products, epoxy resin and rubber anti-aging agents, continued to decline month-on-month, affecting the company's overall profitability.
The sales volume of the company's main products continued to rise, and the sales volume of the company's main products continued to increase year on year in the first three quarters of 2023 and month on month in 2023Q3. According to the company announcement, in the first three quarters of 2023, sales of chlorobenzene products, chlor-alkali products, resin products, and rubber anti-aging agents were +15.85%, +45.80%, +70.87%, and +3.68%, respectively; in the 2023Q3 single quarter, sales volume was +9.10%, +21.56%, +4.22%, +26.88%, respectively. Furthermore, in the first half of the year, the company sold 5,500 tons/year of aramid devices, and continued to promote an integrated marketing strategy for research, production and marketing, optimized product sales mix, and stable profitability. At the same time, the company's 2,500 tons/year expansion project is expected to be completed next year, and the company's production and sales volume is expected to maintain month-on-month growth in the next 2 years. Under the severe market environment, the company continues to improve quality and efficiency, tap potential, strengthen product marketing, promote an increase in product market share, and wait for the bottom of prosperity to recover.
The first phase of C3 in Lianyungang is fully completed, and the company's development is about to begin a new phase. On October 29, the company stated that the 600,000 ton/year propane dehydrogenation (PDH) unit of the carbon three (C3) phase I project has recently been put into trial operation, and the product is expected to be produced in early November. This marks the completion of the company's entire epoxy resin industry chain integration equipment in Lianyungang. In addition, the project's second BPA unit with an annual output of 240,000 tons was put into production in September and the product was produced at one time. Combined with the production capacity of the first unit, the company's total BPA production capacity is expected to reach 480,000 tons/year. The company lays out the world's most fully equipped and highly competitive “propylene - epoxy resin” industry chain. Using PDH as the source, the company lays out important raw materials such as upstream production of 480,000 tons of bisphenol A and 150,000 tons of epichlorohydrin using green processes to enhance the control capacity of key intermediates, build an integrated industrial chain, and combine existing production capacity and technical advantages, which will further enhance the company's comprehensive competitiveness in the epoxy resin field. In addition, the company's 400,000-ton propylene oxide plant is expected to be loaded on November 8, and is expected to produce qualified products after commissioning. At that time, the company's carbon three industry chain investment project will be fully put into operation. The full commissioning of the first phase of the company's C3 project marks a new stage in the company's transformation and development, laying the foundation for the future development of the company's new chemical materials industry.
The profit forecast and investment rating comprehensively consider factors such as the company's operating conditions in the first three quarters, main product prices and prosperity, construction project progress, and downstream demand. We adjusted the company's profit forecast moderately. The company's net profit forecast for 2023-2025 is estimated to be -7.36, 2.50, and 846 million yuan respectively, and the corresponding PE for 2024-2025 is 72 and 21 times, respectively.
Considering factors such as the company's C3 project being fully implemented and gradually released, new chemical materials continue to improve and operating quality gradually improving, and the price of core products such as epoxy resin has gradually bottomed out, we are still optimistic about the company's future development and adjusted it to a “increase in holdings” rating.
Risks suggest a sharp decline in product prices, project commissioning progress falling short of expectations, technology development falling short of expectations, downstream demand expansion and market development falling short of expectations, large fluctuations in raw material prices, increased competition in the industry, turmoil in the international situation, and drastic changes in industry policies.