Key points of investment
Incident: The company revises the 2023 performance forecast. Net profit of non-return to mother is expected to be deducted in 2023 of 800 million yuan. On February 23, 2024, the company issued a revised announcement of the 2023 performance forecast: The company revised the performance forecast issued on January 31, 2024 in accordance with the relevant explanatory notice from the Securities Regulatory Commission. After the revisions, the company expects to achieve net profit of 10-12 billion yuan after deducting net profit from non-mother to mother in 2023; according to Wind data, in the first three quarters of 2023, the company achieved net return to mother The profit is 108 million yuan, and the net profit loss after deducting non-return to mother is about 130 million yuan. Based on this, we estimate that in the 2023Q4 single quarter, the company expects to achieve net profit of 892-1,092 million yuan, and is expected to achieve net profit of 93-1.13 billion yuan without return to mother. The performance is in line with expectations.
Opinion 1: The price spread of aromatic hydrocarbons such as PX and pure benzene widened markedly in 2023, driving the company's profits to repair the steady operation of crude oil prices in 2023. Coupled with the recovery in domestic demand for downstream polyester filaments and terminal spinning, the price spread of aromatic hydrocarbons was clearly repaired. According to Wind data, as of December 2023, domestic retail sales of clothing, footwear, needles, and textiles totaled about 1.41 trillion yuan, a year-on-year increase of 12.9%, and domestic demand for textiles and clothing recovered strongly. Driven by terminal demand, the aromatic hydrocarbon price difference was clearly fixed. According to Wind data, we calculated that the average annual price difference for PX-naphtha was about 315 US dollars/ton in 2022, and the average annual price difference for PX-naphtha was restored to about 384 US dollars/ton in 2023, +22% over the previous month.
The company is the world's largest PX production base. The holding subsidiary Zhejiang Petrochemical has an annual PX production capacity of 9 million tons, and the wholly-owned subsidiary, Zhongjin Petrochemical has an annual PX production capacity of 1.6 million tons. It fully benefited from PX's profit recovery in 2023.
Opinion 2: US textile and garment wholesalers' inventories have clearly been removed, and aromatics are expected to be replenished in 2024. According to Wind data, as of December 2023, the inventory of US clothing and garment fabric wholesalers continued to be reduced to about US$32.8 billion, a year-on-year decline of about 23%, and inventory depreciation was obvious; as of December 2023, the inventory sales ratio of US clothing and garment fabric wholesalers had dropped to 2.75 (seasonally adjusted value), with a year-on-year decline of 0.54, and inventory sales improved markedly. Domestic demand for textile garments will recover significantly in 2023. We are optimistic that domestic demand for spinning clothing will continue to recover in 2024. The US textile industry is expected to enter a stock replenishment cycle, driving domestic textile and polyester filament exports. The peak of domestic PX production has passed. Currently, the total domestic PX plan/production capacity under construction is only 5 million tons/year, and the supply and demand pattern has improved markedly. We are optimistic that downstream demand will recover further in 2024 and boost the profits of the “PX-PTA-polyester filament” industry chain.
Investment suggestions: (1) The company has the largest PX production capacity in the world, and the price spread of aromatic hydrocarbon chain products is expected to continue to expand and boost the company's profits in 2024; (2) Zhejiang Petrochemical's high-performance resin and high-end new material projects are also expected to land one after another and contribute to increased performance; (3) The company plans to acquire 50% of Saudi Aramco's SASREF refinery to increase product flexibility and complexity through expansion and increased production capacity (Jubail Industrial Zone has complete infrastructure, transportation costs, water and electricity prices, land rent, government taxes, etc., are relatively low. supply cheap and high quality), and Jointly developing the upgrade and expansion of the CICC petrochemical plant and developing a new downstream Rongsheng New Materials (Zhoushan) project is expected to open up space for the company's long-term growth. We expect the company's net profit to be 1.11 billion yuan, 7.27 billion yuan, and 10.37 billion yuan respectively in 2023-2025, -66.8%, +555.2%, and +42.7%, respectively; the company's EPS is 0.11, 0.72, and 1.02 yuan respectively. The current stock price corresponding to 2023-2025 PE is 93.1, 14.2, and 10.0 times, respectively, maintaining the company's “buy” rating.
Risk warning: Crude oil prices fluctuate greatly, projects falling short of expectations, deteriorating supply and demand patterns, etc.