Description of the event
The company released its 2023 annual report. The cumulative revenue for the full year of 2023 was 2,959 million yuan, up 0.78% year on year; net profit to mother was 154 million yuan, down 18.75% year on year; and net cash flow from operating activities was 597 million yuan, down 252.83% year on year. Among them, revenue for the fourth quarter of 2023 was 1,213 billion yuan, up 0.49% year on year; net profit to mother was 96 million yuan, down 21.69% year on year.
Incident comments
The company actively lays out green and low-carbon fields to promote technological innovation and industrial upgrading. The company responds positively to the national green development strategy, continuously increases investment in technological innovation, accelerates the development and application of green and low-carbon technologies, and promotes the development of the industry in a more environmentally friendly and efficient direction. The company actively implements the green and clean strategy, promotes energy purification, large-scale, low-carbon processes and product greening, and organizes experts to set up research groups to focus on low-carbon technology in the petrochemical industry and explore intelligent, green and high-end implementation paths. While making every effort to develop the existing market for special petrochemical equipment, special refining equipment, EPC turnkey services and other supporting products and services, the company will also actively expand its products and business downstream of the industrial chain, striving to make breakthroughs in new materials, new processes, and new energy sources, and improve the technical layout of the entire industry chain. In 2023, the company reached a series of strategic cooperation with a number of large enterprises, including reaching strategic partnerships with Linde Engineering, signing an industrial digital intelligence innovation platform agreement with COMAC Shanghai Airlines, and a joint innovation strategic cooperation agreement with CNPC Puyuan. We are committed to working together to integrate the technical advantages of the entire CNPC nuclear industry chain and the integrated R&D, design and manufacturing capabilities of Zhuoran Co., Ltd. in the future, making every effort to build a full-cycle green cycle industry cluster to enhance the overall competitiveness of the industry.
A new wave of ethylene construction has begun, and the company has huge room to grow. A new cycle of ethylene construction begins. From 2023-2025, China will add about 20.1 million tons of ethylene (oil+light hydrocarbon cracking) production capacity, with a total investment of nearly 530 billion yuan. Judging from the construction and commissioning time of this round of additional production capacity, more ethylene projects were approved in the middle and late 2022, and 2023 to 2025 will be the main construction period.
Zhenhua Petroleum's major order landed, opening up growth space for downstream ethylene and other deep-processing petrochemical equipment. Shanghai Zhuoshu, a wholly-owned subsidiary of the company, has received major orders from Zhenhua Petroleum, with an estimated order amount of 6.936 billion yuan, including 300/670,000 tons/year EPC order for PO/SM equipment ($3.356 billion), 260,000 tons/year EPC order for maleic anhydride main plant ($1,446 million), and 400,000 tons/year butane reaction unit EPC order (RMB 2,134 billion). The company has provided equipment supply and general engineering contracting services for many years. The total order amount of Zhenhua Petroleum is 236.3% of the company's revenue in 2022. Orders are paid according to the purchase conditions at points such as contract signing, project commencement, equipment order, arrival of main materials, equipment delivery, installation and acceptance. According to the company's accounting policy, it is expected to have a positive impact on the company's 2024 and 2025 results.
A memorandum of understanding was signed with Linde to open up market space for EDHOXTM technology, device modularization, etc. in domestic and global markets. Linde is one of the world's leading industrial gas and engineering companies. Linde and the company signed the “Strategic Partnership Memorandum of Cooperation on EDHOXTM Technology Implementation in China and Global Cooperation” for the first global cooperative EDHOXTM project in China. The company and Linde will accelerate the development of the combined competitive advantage of global manufacturing and design using the “integrated design and manufacturing” model.
As one of the leading domestic petrochemical equipment companies, without considering future changes in share capital, the company's net profit from 2024 to 2026 is estimated to be 290 million yuan, 400 million yuan, and 50 million yuan, corresponding to the closing price of PE on April 19, 2024 being 13.3X, 9.7X, and 7.8X, respectively, maintaining a “buy” rating.
Risk warning
1. New orders fall short of expectations; 2. Order confirmation falls short of expectations; 3. Major changes in industrial policy.