Matters:
The company released its report for the third quarter of 2023. The first three quarters achieved revenue of 101,529 billion yuan, a year-on-year decrease of 17.67%; net profit was 206 million yuan, a year-on-year decrease of 84.34%. Among them, Q3 achieved revenue of 37.213 billion yuan in a single quarter, a year-on-year decrease of 14.48%; realized net profit of 130 million yuan, an increase of 126.25% over the previous year; and realized net profit after deduction of 119 million yuan, an increase of 125.59% over the previous year, an increase of 82.08% over the previous year.
Commentary:
The prosperity of the overseas refining and chemical sector recovered, and profits rebounded month-on-month in the third quarter. Looking at the refining and chemical sector, 23Q3 crude oil prices returned to an upward trend. The average price of Q3 Brent crude oil was 86.92 US dollars/barrel, +11% month-on-month. Strong cost support compounded by the boom in overseas refined oil demand, the price spread for refined oil products in Southeast Asia expanded rapidly. The 23Q3 Southeast Asia gasoline/diesel price difference was 18.72/28.51 US dollars/barrel, respectively, +17%/+91% month-on-month. In terms of chemicals, the PX price difference was 401 US dollars/ton, down about 1% from month to month. Overall, it remained relatively high. Judging from the PTA and bottle tablet sector, the price of PX for 23Q3 raw materials remained high, while PTA's price transmission was poor due to weak downstream demand, and the bottle itself entered the peak production season, so PTA and bottle tablet profits were under pressure. In 23Q3, the domestic PTA/bottle price difference was 925/499 yuan/ton, respectively, -20%/-36% month-on-month. Looking at the polyester sector, the polyester filament boom is still in the process of weak repair. Since July, the average starting load of the industry has risen to more than 80%. The overall burden on the industry has been reduced during the Asian Games, and production of some devices has been affected to a certain extent. 23Q3 domestic POY, FDY, and DTY cash flows were -100, 18, and 404 yuan/ton respectively, compared to -42, -19, and +101 yuan/ton, respectively. In the third quarter, gross sales margin/ net profit margin was 4.92%/0.53%, respectively, and +2.40/ +0.77pct month-on-month respectively.
The boom in overseas diesel continues, and we are optimistic about future profit recovery in the polyester filament industry. Looking ahead, the boom in diesel in Southeast Asia is expected to continue. As of October 30, the diesel cracking price gap remained above $26 per barrel. As the inflection point of the overseas interest rate hike cycle approaches, overseas diesel demand is expected to remain in a high boom range.
In terms of filament, the starting load of domestic downstream looms has rebounded rapidly since the fourth quarter. Currently, the cash flow of various products is still in the relatively low range, and subsequent profits are expected to stabilize as the supply and demand pattern improves. Based on the subsequent recovery of overseas demand and the arrival of an inflection point in the domestic filament production capacity expansion cycle, it is expected that the supply and demand pattern of the industry will continue to be optimized and the profit recovery of polyester filament will be brought about.
The second phase of Brunei is progressing in an orderly manner, and the domestic production capacity layout has entered the harvest period one after another. Relying on overseas refineries in Brunei, the company continues to optimize the integrated construction of the “polyester” and “nylon” industrial chains. At present, the second phase of the Brunei project has received a preliminary approval letter from the Brunei government. The relevant funding approval procedures are progressing in an orderly manner. A new “olefin-polyolefin” industry chain will be added later to raise the level of refining and chemical integration of the Brunei project. In terms of domestic production capacity, the 1.1 million ton short fiber projects in Suqian, Jiangsu, and the 2.5 million ton PTA/1.8 million ton bottle chip projects in Hainan Yisheng are also expected to be completed and put into operation one after another, and the company has sufficient capacity growth.
Investment suggestions: Considering that demand for downstream chemicals is still relatively weak recently, and it will take time for profits to recover in the context of high oil prices, we lowered the company's net profit forecasts for 23-25 to 3.24, 8.75, and 1,292 billion yuan, respectively, corresponding to EPS of 0.09, 0.24, and 0.35 yuan (previously predicted 0.50, 0.77, and 1.08 yuan), and the current market value corresponding to PE is 81x, 30x, and 20x, respectively. Referring to comparable companies in the same industry and the company's historical valuation center, we gave the company 35 times PE in 2024, corresponding to the target price of 8.4 yuan for 24 years, and maintained the “recommended” rating.
Risk warning: risk of large fluctuations in energy prices, downstream demand for polyester falling short of expectations, overseas demand for refined oil products falling short of expectations, capacity building falling short of expectations, etc.