1Q24 results are in line with our expectations
The company announced 1Q24 results: operating income of 21.3 billion yuan, -3% year-on-year; net profit to mother of 84 million yuan, which turned a year-on-year loss into a profit, mainly due to an improvement in gross profit of petrochemical products, which led to a year-on-year increase in operating performance. The 1Q24 results were largely in line with our expectations.
The 1Q24 company produced 88,000 tons of gasoline, +14%; diesel production was 738,000 tons, -12%; aviation kerosene production was 617,000 tons, +51% year over year; ethylene production was 110,000 tons, -38% year over year.
Development trends
Refining profits have remained stable. Due to the gradual rise in crude oil prices in 1Q24, we expect the refining sector to be the main source of profit. Production of aviation kerosene with good tonnes of profit increased year-on-year, improving product structure and profits. We expect the 2024 Middle East crude oil OSP (Saudi Arabia's official crude oil price for Asian buyers) to be lower than the full year of last year, which is beneficial to the profits of China's main refineries.
Aromatic hydrocarbons are booming. Aromatics profits remain high in 1Q24, and we expect the average gross profit per ton of aromatic hydrocarbons to be close to 2,000 yuan/ton. Furthermore, we judge that the aromatic hydrocarbon boom is expected to remain high in 2024-2025. We believe 1Q24 is at full capacity of 600,000 tons of PX, but routine maintenance in 2Q24 may affect production.
Prioritize efficiency and reduce the start-up of some chemical plants. Since the accident occurred in 2022, the company has strictly managed and basically eliminated all safety hazards. Since this year, the company has been profit-oriented, and the operating rate of some chemical and downstream plants may be at a low level to cope with competition in the chemical industry.
Focus on new projects and reforms to improve quality. We anticipate that the future of Shanghai Petrochemical's new planned chemical project may become more clear. Recently, Sinopec's oil conversion projects, such as the Kazakhstan project, added ethane as a raw material for ethylene; we believe that the progress of the new project, raw materials, and technical routes will be an important focus in the future.
Profit forecasting and valuation
We keep our 2024/25 earnings forecast unchanged. We maintain the A/H target price of HK$3.1/1.2 unchanged, corresponding to net market ratios of 1.3/0.46x 2024 and 1.3/0.42x 2025, and an upward margin of 12%/15%, maintaining the “outperforming industry” rating for A/H shares. Currently, A/H shares are trading at 1.2/0.4 times the 2024 net market ratio and 1.1/0.4 times the 2025 net market ratio.
risks
International oil prices have fluctuated greatly, and new projects have fallen short of expectations.