Key points of investment:
Profit improved, dividend ratio increased. In 2023, the company's revenue was 234.791 billion yuan, +5.61% year on year; net profit to mother was 6.905 billion yuan, +197.83% year on year; net cash flow from operating activities was 23.536 billion yuan, maintaining a level of over 20 billion yuan. The company plans to distribute a cash dividend of 0.55 yuan (tax included) per share to all shareholders, with a dividend ratio of 56.07%, the best level since 2019. In 1Q24, the company achieved operating income of 58.39 billion yuan, +4.00% year over month; realized net profit of 2,139 billion yuan, +109.80% year over year and +77.68% month on month. The company's aromatic hydrocarbon chain maintained a high boom cycle, coal costs declined, the profit situation of coal chemical products was good, and demand for downstream polyester fibers and functional films picked up and price differences recovered.
The refining and polyester sectors improved significantly in 2023. In 2023, all business segments of the company improved year over year. Among them, (1) Refining and Ethylene subsidiaries achieved net profit of 3.358 billion yuan and 1,304 billion yuan respectively, totaling 4.662 billion yuan, an increase of 2,823 billion yuan (+154%) over the previous year. (2) In the polyester sector, Hengli Chemical Fiber achieved net profit of 1,639 million yuan, an increase of 1,272 billion yuan (+347%); Kanghui New Materials achieved net profit of 244 million yuan, an increase of 25 million yuan (+11%) over the previous year. (3) Hengli Petrochemical, a subsidiary in the PTA sector, achieved net profit of 162 million yuan, reversing losses over the previous year.
Projects under construction are progressing steadily to promote the development of “platformization+new materials”. The company completed the construction of an upstream “oil, coal, chemical” chemical platform, which mainly includes 20 million tons/year of oil refining, 1.5 million tons/year of ethylene, and 5 million tons/year of modern coal chemical plants. The company is steadily advancing the construction of 1.6 million tons/year high-performance resin and new material projects, functional polyester film projects, and lithium battery diaphragm projects. The projects will enter the peak production period in the first half of 2024. The company will achieve a significant increase in the production capacity of new downstream chemical products, including high-end fine chemicals, optical films, electronic films, lithium battery separators, battery electrolytes, composite fluid collector base films, and photovoltaic backplane base films.
Saudi Aramco plans to acquire approximately 10% of the company's shares to strengthen strategic cooperation. On April 22, 2024, the company announced that the controlling shareholder Hengli Group and Saudi Aramco signed a “Memorandum of Understanding”. The main contents include discussions between the two parties: (1) Saudi Aramco (or a related party controlled by it) plans to acquire 10% of the company's issued share capital from 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 its controlled affiliates) in crude oil supply, raw material supply, product procurement, technology licensing, etc.
Profit forecasting and investment ratings. We expect the company's net profit to be 9.5 billion yuan, 10.9 billion yuan and 12.4 billion yuan respectively, EPS of 1.35 billion yuan, 1.55 billion yuan, and 1.76 yuan, respectively, and the 2024 BPS of 9.08 yuan. We maintain a “superior to market” rating based on PB 2.1-2.3 times in 2024, corresponding to a reasonable value range of 19.07-20.88 yuan (PE 14-15 times in 2024).
Risk warning: Crude oil prices fluctuate greatly; risk of large fluctuations in product prices; the process of projects under construction falls short of expectations.