The losses were reversed year over year in 2023. In 2023, the company achieved operating income of 136.148 billion yuan, -10.46% year-on-year; realized net profit of 435 million yuan, +140.34% year-on-year, reversing losses. The company's profit improvement is mainly due to: (1) as terminal demand rebounded, production and sales of polyester products boomed, and profits improved; (2) the impact of non-recurring profit and loss on net profit of 380 million yuan, mainly government subsidies and illiquid asset disposal gains and losses.

Polyester fiber: demand improves, profits increase. In 2023, the production and sales of the company's polyester products were strong, with an output of 7.7079 million tons, +11.36% year over year; sales volume of 7.723 million tons, +12.71% year over year. In 2023, the company's gross profit of polyester yarn was 2,079 billion yuan, an increase of 1,541 billion yuan (+287%) over the previous year.

Refining and chemical: Factors such as technical reform affect profits. In 2023, the production and sales volume of refined oil products at the company's Brunei refinery was 5.8024 million tons and 5.825 million tons, respectively, down 9.66% and 8.86% year on year; production and sales of chemical products were 1,818,400 tons and 1.827,700 tons, respectively, down 10.15% and 9.43% year-on-year respectively.

In 2023, Brunei Refining & Chemical (single unit) achieved net profit of 13.98 million yuan. Profit pressure was mainly due to: (1) in the first half of 2023, the Brunei refinery implemented technological transformation work, and the technical reform expenses were high. At the same time, during the technological transformation period, they still had to bear fixed costs such as labor costs and depreciation; (2) interest rates on overseas dollar loans rose, leading to a significant increase in the company's financial expenses over the same period last year. By product, the company achieved gross profit of 1,085 billion yuan in 2023, a year-on-year decrease of 1,375 billion yuan (-56%); chemicals achieved gross profit of 1,417 billion yuan, an increase of 1,195 billion yuan (+536%) over the previous year, achieving significant improvements.

Balanced layout of the entire industry chain. As of the disclosure date of the 2023 annual report, the company has crude oil processing capacity of 8 million tons/year; PTA production capacity of 21.5 million tons/year; PIA production capacity of 300,000 tons/year; caprolactam (CPL) production capacity of 400,000 tons/year; participating polymerization production capacity of 111.15 million tons/year, including polyester fiber and 3.6 million tons/year for bottle flakes (including rPET).

Key projects are progressing steadily to strengthen the integrated industrial chain. The company is steadily advancing projects such as 1.2 million tons/year “caprolactame-polyamide” integration and supporting projects, and Brunei Refining and Chemical Phase II. In addition, the joint venture company Hainan Yisheng's “2.5 million tons/year PTA+1.8 million tons/year functional materials project” is progressing steadily, and the 2.5 million ton PTA plant will enter trial production stage in 2023; in the 1.8 million ton functional materials project, the first 600,000 ton unit has already been tested for production, and the remaining two sets of 1.2 million tons of plants with a total annual output of 1.2 million tons will be tested in 2024.

Profit forecasting and investment ratings. We expect EPS in 2024-2026 to be 0.27, 0.38, 0.46 yuan, and 2024 BPS 6.95 yuan, respectively. Referring to comparable company valuation levels, we will give 2024 PB 1.1-1.3 times, corresponding to a reasonable value range of 7.65-9.04 yuan (corresponding to 28-33 times PE in 2024), maintaining the “superior to market” rating.

Risk warning: Crude oil prices fluctuate at a high level; product prices fluctuate greatly; the progress of projects under construction falls short of expectations.