Description of the event
On the evening of March 29, 2024, Hualu Hengsheng released its 2023 annual report. During the reporting period, the company achieved operating income of 27.260 billion yuan, a year-on-year decrease of 9.87%, and net profit to mother of 3,576 billion yuan, a year-on-year decrease of 43.14%. In Q4 2023, we achieved revenue of 7.914 billion yuan, up 9.36% year on year, up 13.27% month on month, and net profit to mother of 649 million yuan, down 14.09% year on year and 46.72% month on month.
The Q4 main product volume increased and the price difference was reduced. The company's product gross margin declined month-on-month, benefiting from the commissioning of the Jingzhou base project. In 2023 Q4, production and sales of the company's main products increased significantly month-on-month. The production volume of new energy materials/fertiliser/organic amine/acetic acid and derivatives was 106.35/107.25/15.46/294,500 tons, respectively, -0.99%/+25.90%/+27.03%/+96.99%; sales of new energy materials/fertiliser/organic amine/acetic acid and derivatives were 57.95/96.66/ 14.14/262,500 tons were -9.16%/+29.07%/+5.68%/+76.53%, respectively. The company's 2023 Q4 revenue was 7.914 billion yuan, an increase of 13.27% over the previous month. However, prices of raw materials rose steadily in Q4 2023, prices of some products declined, and gross margins of products were under pressure in the short term. According to Baichuan data, the average market price of thermal coal/pure benzene/propylene in 2023 Q4 was 894.62/ 7474.52/ 6943.95 yuan/ton, with a month-on-month change of +5.88%/-1.56%/+4.72%. In terms of products, the prices of urea/DMF/acetate/dimethyl carbonate were 2411.66/ 5039.95/ 3225.77/ 3991.21 yuan/ton, respectively, with a month-on-month change of +0.31%/-7.01%/-11.70%/-7.89%, the company Q4 The gross profit margin was 17.77%, down 6.56pct month-on-month.
The commissioning of the Jingzhou base contributed to performance, added new materials to open up the multi-line back-end layout of the company's coal gasification platform, and developed to the upper end of the value chain. The level of cost control was higher than the industry average. In November 2023, the first phase of the Jingzhou subsidiary project was completed and put into operation, setting a new record for the fastest construction, operation, and profit in the industry, achieving steady production and increase; the Texas headquarters made every effort to promote “two new” projects for new energy and new materials, high-end solvents and 3×480 t/h high-efficiency boiler projects were put into operation, and the nylon 66 high-end new materials project progressed as scheduled. In addition, the Jingzhou base invested 5,054 billion yuan in the green new energy project to build an integrated biodegradable materials project with an annual output of 200,000 tons of BDO, 160,000 tons of NMP and 30,000 tons of PBAT, a 100,000 tons/year acetic anhydride project, a melamine resin monomer material project, and a melamine resin monomer material optimization and product optimization and upgrading project.
The Jingzhou base is an important project for the company's capital expenditure, and the commissioning of the new project will open up new growth space for the company.
Investment advice
Hualu Hengsheng is one of the leading enterprises in the domestic chemical industry. Based on a coal gasification platform, it has a strong cost control advantage. Currently, product prices are still in the bottom range, and the company's new production capacity project is put into operation. The company's net profit for 2024-2026 is 45.36, 54.97, and 6.310 billion yuan respectively, with year-on-year growth rates of 26.8%, 21.2%, and 14.8%. The 2024-2025 results changed by -27.53% and -24.33% respectively from the previous value, corresponding to PE 12, 10, 9 times. Maintain a “buy” rating.
Risk warning
(1) Risks caused by price fluctuations of raw materials and major products; (2) production safety risks;
(3) Environmental protection risks;
(4) The project's commissioning schedule fell short of expectations.