Key points of investment
Incident: The company released its 2023 annual report, achieving operating income of 27.3 billion yuan, -10% year-on-year, net profit to mother of 3.58 billion yuan, or -43% year-on-year, after deducting non-net profit of 3.70 billion yuan, or -42% year-on-year. Among them, Q4 achieved net profit of 650 million yuan in a single quarter, -14% year-on-year, -47% month-on-month, and deducted non-net profit of 80 million yuan, -15% year-on-year, and -34% month-on-month. The performance was in line with expectations.
Traditional coal chemicals: Urea is relatively profitable, and the acetic acid and organic amine boom is under pressure. 1) In 2023, the company's fertiliser/organic amine/acetic acid and derivatives achieved revenue of 57/27.2 billion yuan, accounting for 21%/10%/8% of the company's revenue, achieving gross profit of 19.9/34/4.3 billion yuan, accounting for 35%/6%/8% of the company's gross margin, and 35%/13%/21%, respectively, compared to 2022, -4 pct/-44pct/-10pct respectively. 2) The urea market showed a V-shaped trend in 2023. The second half of the year benefited from low inventories and boosted agricultural demand, and the urea profit center rose. According to Baichuan Yingfu statistics (same below), the average gross profit of the urea industry in 2023 was 515 yuan/ton, compared with +2 yuan/ton compared to the previous year, and the operating rate of the industry was 80.4%. 3) Affected by the investment of new production capacity, the DMF and acetic acid supply and demand pressure increased, and the economy was operating under pressure. Among them, the average gross profit of the DMF and acetic acid industries in 2023 was 279/413 yuan/ton, respectively, -4420/-715 yuan/ton, respectively. The industry operating rate was 51.5%/77.4%.
New energy and new materials: The share of revenue continues to rise, and product profit performance is divided. 1) In 2023, the company's new materials products achieved revenue of 15.5 billion yuan, accounting for 57% of the company's revenue, and realized gross profit of 2.67 billion yuan, accounting for 47% of the company's gross margin and 17% gross margin, +2pct compared to 2022.
2) By product, thanks to the recovery in downstream plasticizer consumption and increased industry maintenance activities, octanol maintained a high boom in 2023. The average gross profit of the industry was 3063 yuan/ton, +229 yuan/ton compared to the previous year. However, at the same time, due to factors such as industry capacity investment, profits for some new material products declined in 2023. Among them, the average gross profit of the DMC/adipic acid industry was -1,140/ -225 yuan/ton, respectively, compared to -3,3999/ -1,023 yuan/ton compared to the previous year.
The first phase of production in Jingzhou contributed to an increase, leading the industry across the board in terms of energy efficiency. The first phase of the Jingzhou project was officially put into operation in November 23, setting a new record for the fastest construction, operation, and profit in the industry, achieving net profit of about 155 million yuan for the whole year. According to the energy efficiency inspection report disclosed by the Jingzhou Municipal Government, the estimated annual comprehensive energy consumption of the Jingzhou Phase I project was 5% below the approved value. Among them, the comprehensive energy consumption per unit product of synthetic ammonia, urea, and coal-to-methanol products was superior to the industry's benchmark value level.
Thermal coal prices are moving downward, and product price spreads are expected to bottom out and stabilize. According to Baichuan Yingfu statistics, the average price of 5,500 kilocalories of thermal coal in Qinhuangdao in 2023 was 981 yuan/ton, compared to -278 yuan/ton compared to the previous year. After entering 2024, the price of thermal coal continued to decline. As of March 28, the price of thermal coal was 850 yuan/ton, down about 76 yuan/ton from the beginning of the year. Currently, the overall price spread of the company's main products is at a historically low level. As raw material costs fall, the industry boom is expected to bottom out and stabilize.
Profit forecast and investment rating: Taking into account the pace of demand recovery, we adjusted the company's net profit to the mother for 2024-2025 to be 4.5/55 billion yuan (previously 61.74 billion yuan), and added 2026 to 6.8 billion yuan. Based on the closing price on March 29, the corresponding PE was 12.4/10.2/8.2 times, maintaining the “buy” rating.
Risk warning: Product demand falls short of expectations, industry production capacity expands drastically, and coal prices fluctuate sharply