International oil prices may fluctuate at medium to high levels, downstream demand will continue to recover, and profits in the refining, chemical, and other petrochemical sectors are expected to recover.
The Zhitong Finance App learned that Bank of China Securities released a research report saying that in the third quarter of 2023, as prices of crude oil and petrochemical products rose, downstream demand recovered, and the petroleum and petrochemical industry's net profit, ROE (dilution), and sales profit margin all increased markedly month-on-month. The industry continued to be booming, while the oilfield service sector continued to improve. Looking ahead to the future market, international oil prices may fluctuate at medium to high levels. Downstream demand will continue to recover, and profits in the refining, chemical and other petrochemical sectors are expected to recover. Current valuations are at historically low levels, maintaining the industry's “better than the market” rating.
The views of Bank of China Securities are as follows:
In Q3, quarterly revenue and net profit both increased, and industry sentiment remained high.
The industry's revenue for the third quarter of 2023 was 2072,668 billion yuan, up 1.34% year on year and 7.42% month on month. Net profit of the mother was 74.921 billion yuan, an increase of 37.72% over the previous year. The month-on-month increase was 16.18%. The industry ROE (dilution) for the third quarter of 2023 was 2.78%, up 0.71 pct year on year and 0.37 pct month on month. The gross margin and net profit margin were 17.93% and 3.88%, respectively, up 3.63 pct and 1.02pct from the previous year, and 1.34 pct and 0.60 pct, respectively.
The oilfield services sector continues to improve.
In the first three quarters of 2023, the revenue of oil and petrochemical trade, oilfield services, and other petrochemical sectors increased by 18.17%, 10.32%, and 7.00%, respectively. Looking at the third quarter alone, oil and gas extraction, refining and chemical, and other petrochemical sectors achieved positive month-on-month revenue growth. In terms of profit, in the first three quarters, net profit from the oilfield services, oil and gas and refining engineering, and refining and chemical sectors increased year-on-year, while the oil and petrochemical trade, other petrochemical, and oil and gas extraction sectors were under pressure. Looking at the third quarter alone, the profitability of other petrochemical, oil and gas extraction, and refining and chemical sectors increased markedly month-on-month.
The number of projects under construction in the industry declined slightly, and fixed assets continued to increase.
Projects under construction in the petroleum and petrochemical industry in the first three quarters of 2023 were 582,667 billion yuan, a year-on-year decrease of 6.18%, and fixed assets reached 1795,111 billion yuan, an increase of 11.35% over the previous year. As Guangdong Petrochemical and Shenghong Refining and Chemical integrated projects are put into operation, and Zhejiang Petrochemical Phase II chemical plants have successfully produced qualified products, the scale of projects under construction of some leading enterprises has been reduced. At the same time, the projects under construction of some leading enterprises have continued to expand. Looking forward to the future, the centralized commissioning of large-scale refining and chemical projects may come to an end, but the scale of projects under construction in the industry remains at a high level, and fixed assets are expected to continue to grow.
Investment advice:
As of the close of trading on November 17, the industry's price-earnings ratio (TTM, excluding negative values) was 7.68 times, at a historical quantile of 0.68% (2002 to date), and the net market ratio (MRQ, excluding negative values) was 0.95 times, at the historical level of 3.35%. Looking ahead to 2024, crude oil prices may remain medium to high, downstream demand for petrochemical products is expected to recover, and the prosperity of the petroleum and petrochemical industry may continue, maintaining the industry's strength over market ratings. The selection of sub-industries focuses on integrated leading companies and undervalued sectors. It is recommended to focus on the following investment leads:
The geopolitical conflict in overseas markets continues, and international oil prices are expected to fluctuate at medium to high levels. Relying on unique resource endowments and technological advantages, and continuously improving quality and efficiency, large state-owned oil companies are expected to benefit from the high prosperity of the industry and usher in a revaluation. We recommend Sinopec (600028.SH) and focus on: CNPC (601857.SH) and CNOOC (). 600938.SH
As downstream demand gradually recovers, new projects of private petrochemical companies continue to be put into production, bringing incremental volume, and are continuously extended to fields such as new energy materials, fine chemicals, and degradable plastics. Recommendations: Dongfang Shenghong (000301.SZ), Hengli Petrochemical (600346.SH), Rongsheng Petrochemical (002493.SZ), etc.
The downstream petrochemical industry has been affected by multiple factors such as high costs and reduced demand. The main business is under phased pressure, and the prosperity of the industry is at an all-time low. In the future, as domestic demand increases and external demand improves, industry sentiment is expected to gradually recover. We recommend leading industry segments that have bucked the trend and expanded, such as Tongkun Co., Ltd. (601233.SH).
Risk warning: risk of abnormal fluctuations in oil prices; continued downturn in the global economy, etc.