Core views
In 2023, the company achieved a net profit of 1,086 billion yuan to mother, turning a significant loss into profit over the previous year. Domestic demand picked up in 2023, and the company's performance continued to improve. Filament production capacity investment will gradually slow down from 2024-2025. Considering the relocation and withdrawal of backward production capacity, etc., the actual increase in production capacity is limited, and production is mainly concentrated in leading companies, so the long-term boom is expected to rise. The company currently has a production capacity of 7.4 million tons of filament and 1.2 million tons of staple fiber, and the Xinyi base already has a solid foundation for expanding production. As the filament boom picks up and the company's production capacity continues to expand, performance is expected to continue to grow.
occurrences
The company released its 2023 annual report
In 2023, the company achieved operating income of 61,469 billion yuan, a year-on-year increase of 21.03%, and realized net profit of 1,086 million yuan, turning a year-on-year loss into a profit, and achieving net profit without deduction to mother of 901 million yuan, turning a year-on-year loss into a profit. The net profit of Q1-Q4 to mother was $1.89, 2.90, 4.07, and 199 million yuan, respectively.
Brief review
Supply and demand improved, price spreads picked up, and the 2023 performance turned a sharp loss into profit. In 2023, with the continued strength of the steady domestic growth policy, the margins between supply and demand in the industry improved markedly, the company's production, sales and price differences widened, and prosperity increased. According to China Fiber Network, from January to December 2023, polyester filament production, export volume, and apparent consumption were 4,702, 403, and 45.5 million tons, respectively, +21%, +21% compared with the previous year. In 2023, the company's POY, FDY and DTY sales were 462.9, 142.08, and 765,800 tons, respectively, +19%, +20%, and +24% year over year. The average prices were 6796, 7675, and 8,499 yuan/ton, respectively, -2.93%, -0.25%, and -2.00% year-on-year, with price differences of 1110, 1989, and 2,812 yuan/ton, respectively. Gross margins were 4.91%, 11.18%, and 5.49%, respectively, up 2.17, 4.55, and 2.42pct year-on-year, respectively. Benefiting from the widening spread and the increase in profit, the company achieved net profit of 1,086 billion yuan in 2023, turning a significant loss into profit over the previous year. In 2023, the company's overall gross margin was 5.84%, up 2.13pct year on year, and the net margin was 1.77%, up 2.17pct year on year.
Looking at a single quarter, 2023Q4's POY, FDY, and DTY sales were 132.60, 37.89, and 22.21 million tons, respectively, +14%, +14% month-on-month, +5%, and +17% month-on-month. The total sales volume was 1.93 million tons, +12% month-on-month and +27% year-on-year. According to Wind, in Q4 2023, the average prices of POY, FDY, and DTY were 7505, 8133, and 8826 yuan/ton, respectively, with price differences of 1,080, 1,707, and 2,401 yuan/ton, respectively. The fourth quarter of 2023 entered a low demand season. Price spreads have declined somewhat, and profits have declined month-on-month. Q4 gross margin was 4.52%, down 3.12 pct from month to month, net margin was 1.16%, down 1.38 pct from month to month.
The company's production capacity continues to expand, concentration increases, and the industry supply and demand pattern is improving. The company already has a polyester filament production capacity of 7.4 million tons, with a market share of more than 12%. It is the second largest domestic filament company, with a production capacity of 1.2 million tons of polyester staple fiber. The company focuses on the “Two Continents, Two Lakes” base and is steadily advancing the development of its main business. “Two continents and two lakes” are four major bases: Zhouquan in Tongxiang, Donglin in Huzhou, Dushan in Pinghu, and Xinyi in Xuzhou. At present, the Xuzhou Xinyi base has 600,000 tons of short fiber and 800,000 tons of filament production capacity. At the same time, the base has obtained an energy consumption target of nearly 600,000 tons of standard coal, laying the foundation for the park's subsequent expansion of production. In addition, the company plans to build a project with an annual output of 2.5 million tons of differentiated polyester fiber materials and 100,000 tons of polyester film materials in the Zhouquan block of Tongxiang City. The total investment of the project is 20 billion yuan, and the total planned land use is about 1,080 mu. The first phase is about 3.5 billion yuan, involving about 240 acres of land. The first phase involves about 240 acres of land. The construction period is 3 years. The construction period is 250,000 tons/year polyester production plant (cationic fiber products) and 1 400,000 ton/year polyester production plant (differentiated chemical fiber products). The second phase of investment has not yet been planned.
After the impact of 2022, industry concentration increased further, and leading companies bucked the trend. According to data from Baichuan, China Fiber Network, etc., the industry is expected to add 4.76 million tons of production capacity in 2023, and filament production capacity investment will gradually slow down in 2024-2025. The new production capacity in 2024 includes Xinfengming (400,000 tons) and Rongsheng Petrochemical (500,000 tons), with a total production capacity of about 900,000 tons. In addition, manufacturers such as Hengyi and Fujian Jingwei have relocation, parking, etc., and the actual new production capacity is limited. Including Xinfengming 650,000 tons. The overall supply expansion from 2024-2025 is limited. The expansion is mainly concentrated on leading companies, and with the gradual clearance of backward production capacity, the concentration of filament gradually increases, the pattern of filament supply and demand improves, leading companies increase their bargaining power, and the filament boom is expected to rise.
Extend the chain, strengthen the chain, and repair the chain, and expand overseas. On June 26, the company announced plans to launch an integrated refining and chemical project in northern Indonesia. The main investors in the project were Taikun Petrochemical, and Xinfengming and Tongkun Co., Ltd. held indirect shares of 44.1% and 45.9% respectively. The project address is located in the Taikun Petrochemical Project in North Kalimantan Industrial Park in North Kalimantan Province, Indonesia. The project covers an area of 898 hectares (including 773 hectares for refining and chemical projects and 125 hectares for photovoltaic power generation). The total investment of the project was US$8.624 billion, of which investors raised US$2,615 billion in proportional self-financing and US$6.09 billion in domestic and foreign bank financing loans.
The project construction includes refining and aromatic hydrocarbon process equipment, ethylene and downstream installations and related supporting facilities. The project scale is 16 million tons/year of oil refining. The main products of the project are 4.3 million tons of refined oil products, 4.85 million tons of acetic acid, 1.7 million tons of benzene, 450,000 tons of sulfur, 700,000 tons of propane, 720,000 tons of n-butane, 500,000 tons of polyethylene FDPE, 370,000 tons of EVA (photovoltaic grade), and 240,000 tons of polypropylene.
The construction period of the project is 4 years. After completion, the average annual revenue is expected to be US$10.438 billion and the average annual profit after tax is US$1,328 billion. In terms of shareholding ratio, the contribution to Xinfengming's revenue was approximately US$4.6 billion, and its profit contribution was approximately US$586 million.
The construction of the project will help the company achieve integrated development. PX can be shipped back to the country for use at the company's various bases to ensure the supply of raw materials in the polyester industry chain.
Profit forecast and valuation: The company's net profit for 2024-2026 is estimated to be 1,889 billion yuan, 2,421 billion yuan and 2,622 billion yuan respectively; EPS is 1.23 yuan, 1.58 yuan and 1.71 yuan respectively; PE is 11.0X, 8.6X and 7.9X, respectively, maintaining a “buy” rating.
Risk warning: Crude oil prices continue to rise (crude oil prices are highly related to the international political and economic situation, if crude oil prices rise further, further increasing the company's cost pressure, which in turn affects the company's profitability); industry competition intensifies (there are many domestic filament companies, and each company has plans to expand production on different scales, thereby increasing industry competition and affecting profit margins. After the company announced the start of production, the market is worried about the increase in supply growth, and industry competition intensifies the impact on profits, causing stock prices to fluctuate, but actual production is limited); changes in the macroeconomic environment (changes in the macroeconomic environment apply to the private sector) The polyester filament industry has a certain impact. With the acceleration of economic globalization and integration, if the global economy fluctuates greatly in the future, China's economic growth rate continues to slow down, and downstream demand for polyester filament falls, it may adversely affect the company's business performance); fixed increase termination risk (on October 16, 2023, the company issued the “Notice on Termination of Issuance of Shares to Specific Targets and Withdrawal of Application Documents”. If capital plans are adjusted, the construction progress of the 5.4 million ton PTA fund-raising project may be affected).