Incidents:
On April 25, 2024, Hualu Hengsheng released its report for the first quarter of 2024: the company achieved revenue of 7.978 billion yuan in 2024Q1, +31.80% year over month, +0.81% month on month; realized net profit of 1,065 billion yuan, +36.30% year on month, +64.24% month on month; ROE was 3.62%, up 0.76 percentage points year on year, and 1.35 percentage points month on month. The gross profit margin on sales was 21.89%, up 1.71 percentage points year on year and 4.12 percentage points month on month; net sales margin was 14.25%, up 1.36 percentage points year on year, and 5.44 percentage points month on month.
Investment highlights:
The performance of the Jingzhou base increased in the first quarter, and the cost of falling coal prices is expected to decrease in 2024Q1. The company achieved revenue of 7.978 billion yuan, +1.925 billion yuan, +0.64 billion yuan; gross profit of 1,746 billion yuan, +525 million yuan, and +339 million yuan month-on-month; and net profit to mother of 1,065 million yuan, year-on-year +283 million yuan, and +416 million yuan month-on-month. The year-on-year increase in the company's revenue was mainly due to the commissioning of the Jingzhou project in the fourth quarter and the increase in product sales. 2024Q1 achieved fertilizer sales of 1.062,800 tons, +42.98% year over month, +7.72% month on month; organic amine achieved sales volume of 136,500 tons, +13.00% year on month, -3.47% month on month; acetic acid achieved sales volume of 366,400 tons, +143.94% year on year and +39.58% month on month. Affected by the decline in the price of coal, the main raw material, and the year-on-year increase in prices of products such as acetic acid, octanol, and PA6, the increase in production sales at the Jingzhou base reduced production costs, and the company's gross margin increased year-on-month in the first quarter.
According to Wind, the average price of 2024Q1 urea is 2,230 yuan/ton, -19% month-on-month, -9% month-on-month, -13% month-on-month, -8% month-on-month; the average price of acetic acid is 3015 yuan/ton, +2%, month-on-month, -7% month-on-month, 1,926 yuan/ton, +20%, month-on-month; the average price of adipic acid is 9774 yuan/ton, +8% month-on-month; average price difference 2,767 yuan/ton, -27% month-on-month, +8% month-on-month; average price of PA446 3 yuan/ton, +10% YoY, +4% month-on-month . The price difference was 823 yuan/ton, +17% year over month, -1% month on month; the average price of octanol was 1,2066 yuan/ton, +23% year on month, -1% month on month, price difference 6317 yuan/ton, +58% year on month, +1% month on month.
In terms of period expenses, the company's sales expenses for 2023Q4 were 20 million yuan, +0.07 billion yuan year on month; management expenses were 91 million yuan, up 0.26 billion yuan year on year, -0.11 billion yuan month on month; R&D expenses were 123 million yuan, -49 million yuan year on year, -08 billion yuan month on month; and financial expenses were 58 million yuan, year on year +46 million yuan, or +28 billion yuan month on month.
The net cash flow from 2024Q1's operating activities was 1,131 billion yuan, an increase of 41.27% over the previous year, mainly due to the increase in cash received from the sale of products due to increased sales volume.
According to wind data, since 2024Q2 (as of April 24, 2024), coal prices have remained low after the previous decline. The average price was 702 yuan/ton, -7.61% year-on-year and -9.58% month-on-month. Prices of acetic acid, PA6, DMC, etc. all increased slightly from month to month. The price difference of acetic acid was 2,075 yuan/ton, +8% year on month; PA6 price difference was 1,197 yuan/ton, +121% year on month, +46% month on month; DMC spread was 2,631 yuan/ton, -13% year on month, +17% month on month; optimistic about second-quarter performance recovery.
The first phase of the Jingzhou and Dezhou projects were put into operation. We are optimistic about the long-term growth of the company. On November 10, 2023, the company issued the “Notice on Commissioning of the Holding Subsidiary Park Gas Power Platform Project and Syngas Comprehensive Utilization Project”. The company increased annual production by 1 million tons of urea, 1 million tons of acetic acid, 150,000 tons of dimethylformamide (DMF), and 150,000 tons of methylformamide (DMF). On December 26, 2023, the company issued the “Notice on the Commissioning of the Equal Capacity Alternative Construction 3×480 t/h High-efficiency High-Capacity Coal-Fired Boiler Project”. The company added 2.083 million meters to meet the heating period. At the same time as the demand for centralized heating, the stability of the company's steam supply was improved. On December 26, 2023, the company issued the “High-end Solvent Project Commencement Notice”. The company has an annual production capacity of 600,000 tons of dimethyl carbonate (including 300,000 tons of sales), 300,000 tons of methylethyl carbonate, and 50,000 tons of diethyl carbonate. On March 30, 2023, the company issued an announcement on the investment and construction of the holding subsidiary. The company's Jingzhou base plans to invest 5,054 billion yuan to build an integrated biodegradable material project with an annual output of 200,000 tons of BDO, 160,000 tons of NMP and 30,000 tons of PBAT, a 100,000 tons/year acetic anhydride project, a melamine resin monomer material project, and a melamine resin monomer material raw material and product optimization and upgrading project. The commencement of construction of the Jingzhou base solved the spatial problems that constrain the company's development. Through low-cost capacity expansion and high-end chemical project layout, the company's scale efficiency and leading advantage have become more prominent, and the company's long-term growth is optimistic.
Promote the “Improve Quality, Efficiency, and Value Return” action plan, focusing on investor returns. On April 25, 2024, the company issued an announcement on the action plan to promote the “improve quality, efficiency, and return” action plan. In order to implement the “investor-based” development concept of listed companies, maintain the interests of all shareholders of the company, and promote the company's continuous and healthy development, based on confidence and recognition of the company's future development prospects, the company actively takes measures to promote the “improving quality, efficiency, and valuing return” action plan to give back the trust of investors and establish a good market image of the company. The company has always attached importance to a reasonable return on investment for investors. Since its listing, it has paid cash dividends every year and implemented 6 share transfers. As of 2022, it has accumulated cash dividends of 5.889 billion yuan and transferred 1,799 billion shares. The company's operating performance in 2023 declined year-on-year due to market factors, but it still proposed an annual profit distribution plan with a cash dividend of 6.00 yuan (tax included) for every 10 shares. The total dividend is estimated to be 1,274 billion yuan, and the total cash dividend accounts for 35.63% of the net profit attributable to shareholders of the parent company in the 2023 consolidated statement. If the plan is successfully implemented, the company's cumulative cash dividend amount will be 2.6 times the total amount of capital raised since listing. In the future, under the premise of normal operation, the company will continue to insist on providing investors with continuous cash dividends and scientifically coordinate the company's future development needs to bring long-term return on investment to shareholders.
Profit forecasts and investment ratings
The company's revenue for 2024-2026 is estimated to be 338, 389, and 43.8 billion yuan, respectively, and net profit to mother will be 52.05, 60.25, and 6.803 billion yuan respectively, corresponding to PE 11.50, 9.93, and 8.80 times, respectively. The company is a leading coal chemical enterprise. The Jingzhou base project is progressing in an orderly manner, optimistic about the company's growth, and maintaining a “buy” rating.
Risk warning
Risk of macroeconomic fluctuations; production capacity investment falling short of expectations; risk of product price fluctuations; risk of fluctuations in raw material prices; decline in future demand; progress of new projects falling short of expectations.