Key points of investment:
Company announcement: In the first quarter of 2024, the company achieved operating income of about 58.4 billion yuan, up about 4% year on year; net profit to mother was about 2.1 billion yuan, up about 110% year on year; net profit after deducted from mother was about 1.8 billion yuan, up about 211% year on year. The performance was in line with our expectations. The increase in the company's profit was mainly due to the improvement in product price spreads. In 24Q1, the company's gross margin level reached 11.16%, an increase of 1.9 pct over the previous year. On the cost side, the 24Q1 company's expense ratio reached 4.19%, an increase of 0.44pct over the previous year. It is mainly due to a large increase in financial expenses. It is speculated that this may be due to changes in the US dollar exchange rate.
The cost recovery was compounded by an increase in profits for some chemicals, and profits in the refining and chemical sector improved year-on-year. In terms of cost, according to Wande data, the 24Q1 Brent oil price reached 81.76 US dollars/barrel, a year-on-year decrease of 0.42%; the price of 5,500 kcal thermal coal in the Bohai Rim reached 729 yuan/ton, a year-on-year decrease of 0.58%. In terms of chemicals, according to Baichuan Yingfu, the company's aromatic hydrocarbon products maintained a high boom. Among them, PX and pure benzene profits increased by 271 and 440 yuan/ton, respectively, over the same period last year, which is the main driving force for the company's performance increase. According to Longzhong data, we estimate that the refining and chemical price difference of Hengli Petrochemical in 24Q1 was about 1,823 yuan/ton, an increase of about 222 yuan/ton over the previous year. Looking ahead to 2024, under the influence of OPEC+ production cuts combined with geopolitical factors, we expect crude oil prices to remain in the $80-90 range in 2024. We expect the refining and chemical sector to have certain inventory returns, and refining demand will gradually recover as the economy recovers, and refining and chemical performance is expected to continue to improve this year.
The profit of polyester products increased month-on-month and is expected to continue to recover in the future. According to Longzhong data, we estimate that the profit of polyester products has recovered to a certain extent in 24Q1. Among them, PTA profit increased 38 yuan/ton month-on-month, and polyester filament profit increased by 10 yuan/ton month-on-month.
Looking ahead to 2024, PTA supply and demand are expected to narrow, and the price difference is expected to be fixed; the polyester filament supply and demand pattern will improve, and the profit center is expected to gradually rise.
Capital expenditure has come to an end, and dividends are expected to remain at a high level. According to the company's announcement, the company's key projects will be put into operation one after another this year, including the 1.6 million tons/year high-performance resin and new materials project and the Kanghui New Material Diaphragm Project, which are expected to be fully put into operation in 2024Q2; 5 million tons of PTA, 800,000 tons of functional polyester film and plastics, the 3 billion square meter lithium battery separator project, and the new materials industrial park project have also basically entered the equipment installation or trial production stage. It is expected that most of the projects under construction will be completed this year, and future capital expenditure is not expected to be large. Therefore, we expect the company's dividends to remain at a high level in the future.
Cooperation with Saudi Aramco can be expected. The controlling shareholder of the company and Saudi Aramco signed a “Memorandum of Understanding”. The two parties are discussing: 1) Saudi Aramco (or a related party under its control) to acquire 10% of the company's shares with Hengli Group; 2) Hengli Group will support and facilitate strategic cooperation between the company (and/or related parties controlled by it) and Saudi Aramco (and/or a, a, related party under its control) in crude oil supply, raw material supply, product procurement, technology licensing, etc. It is expected that the two sides will deepen cooperation in the petrochemical field, which may have a positive impact on the company's future development.
Investment analysis opinion: We maintain our 2024-2026 profit forecasts of 95.44 billion, 12.559 billion, and 14.037 billion, corresponding PE of 11X, 9X, and 8X respectively. We continue to be optimistic about the company's performance improvement and maintain a “buy” rating.
Risk warning: Oil prices fluctuated greatly, the recovery in refining and chemical demand fell short of expectations, the commissioning of projects under construction fell short of expectations, and progress in cooperation with Saudi Aramco did not meet expectations, etc.