The upward shift in oil prices from the center has contributed to earnings, and the refining market is still waiting to be repaired
There is still uncertainty about geopolitical risks such as the Arab-Israeli conflict and the Russia-Ukraine conflict. In addition, OPEC+ still controls remaining global production capacity. In addition, Brazil joined OPEC+ as an observer, and global crude oil inventories are still low. The average price of oil in Q3 in 2023 was 86.75 US dollars/barrel, an increase of 10.89% over the previous year and a decrease of 12.57% over the previous year. Affected by the central rise in oil prices, the prices of refined chemical products have risen overall. Combined with the fact that inventories of most refining and chemical varieties have reached a phased low level, price performance is strong, and the company's revenue has increased dramatically. In addition, 2023Q3's profit declined month-on-month due to the corresponding increase in costs and the increase in operating costs due to the consolidation of ongoing construction projects.
▌R&D investment has increased, and cost control has improved year over year
The gross profit margin of 2023Q3 was 11.87%, up 9.03 pct year on year; net sales interest rate was 2.11%, up 2.47 pct year on year. In terms of expenses, the company continued to optimize expenses during the period. The company's sales, management, R&D, and financial expenses were 0.26%, 0.56%, 0.44%, and 2.56%, respectively, a year-on-year decrease of 0.03 pct, 0.83 pct, 0.35 pct, and 0.66 pct, respectively. Financial expenses increased significantly from month to month, mainly due to increased interest expenses.
Deeply lay out new materials and open up a second growth curve
The company actively lays out the strategic goal of “one million tonnes of EVA”. The production capacity of EVA is under construction and is planned to reach 700,000 tons. At the same time, it is also actively promoting the construction of a 500,000 ton POE production capacity project to further expand high-end applications in the downstream materials business. The company will also lay out the entire lithium iron phosphate cathode materials industry chain in Yichang, Hubei, and fully create a new energy green factory. The project will use phosphate ore as raw material to build 500,000 tons/year of iron phosphate and 300,000 tons/year of lithium iron phosphate. The new materials will create the company's second growth curve, increase the added value of products, and push the company's product profit center upward.
The company signed a framework agreement with Saudi Aramco's subsidiary. Saudi Aramco intends to become a strategic investor in the company and plans to hold a minority stake in the target company; and the two sides intend to cooperate in long-term procurement and supply of raw materials such as crude oil, sales of chemical products and fuel products, and licensing of high value-added technology. The cooperation between the company and Saudi Aramco is a strategic layout that extends the upstream and downstream integration process. It not only guarantees a stable supply of upstream raw materials, but also provides support for the expansion of the downstream new materials field, and also helps the company's internationalization process.
Profit forecasting
Due to large fluctuations in raw material prices and macroeconomic changes, we have revised the company's profit forecast for 2023-2025. It is predicted that the company's revenue for 2023-2025 will be 1405.4, 1626.8 billion yuan, and 1702.1 billion yuan, EPS of 0.48, 0.86, and 1.16 yuan respectively. The current stock price corresponding to PE is 18.4, 10.3, and 7.6 times, respectively. Maintaining a “buy” investment rating based on the company's strategic introduction of Saudi Aramco and the restoration of the prosperity of core products.
Risk warning
Downward economic risk; risk of large fluctuations in product prices; risk of project construction falling short of expectations; risk of limited commencement of construction due to environmental policies; risk of downstream demand falling short of expectations; risk of cooperation with Saudi Aramco falling short of expectations; cooperation with Saudi Aramco falling short of expectations.