Incident: The company released its report for the first quarter of 2024. In 2024Q1, the company achieved operating income of 8.227 billion yuan, a year-on-year increase of 22.19%, a year-on-year decrease of 5.82%, and realized net profit attributable to the parent company of 1,421 billion yuan, an increase of 19.89% year-on-year and a year-on-month decrease of 19.26%, and realized net profit without return to mother of 1,482 billion yuan, an increase of 15.79% over the previous year.
Olefin sector: Thermal coal prices are weakly declining, and profit margins for polyolefins are expanding. In the first quarter of 2024, coal insurance and supply work was actively implemented. Downstream demand was generally weak due to the Spring Festival holiday, and power plants were not very motivated to transport. At the same time, with the supply supplementation of Changxie coal and imported coal, the industry's supply and demand pattern weakened, and thermal coal prices declined. The average purchase price of thermal coal by the company in the first quarter was 452.08 yuan/ton, down 17.34% year on year, and the average price of polyethylene and polypropylene in the first quarter (excluding tax) was 6,923.59 yuan/ton and 6,523.58 yuan/ton respectively, down 2.52% and 5.90% year on year, respectively, increasing profit margin. In terms of sales, polyethylene and polypropylene sold 295,300 tons and 267,600 tons respectively, up 60% and 51% year-on-year respectively. The Ningdong Phase III Olefin Project contributed significantly to the increase in sales. Furthermore, the EVA project was successfully put into operation in 24Q1, achieving revenue of 121 million yuan.
Coking sector: Demand from steel companies has declined, and the coke market continues to be weak. In the first quarter of 2024, steel prices continued to decline, losses in steel mills increased, and sentiment about coke storage prices increased. At the same time, steel mill production cuts and maintenance efforts increased, demand for coke decreased, and prices in the coke market were lowered. The average price of the company's coke in the first quarter (excluding tax) was 1,532.57 yuan/ton, down 14.46% year on year.
The investment of new production capacity continues to advance, and the cost advantage has been further consolidated. In 2023, the company's Ningdong Phase III coal-to-olefin and C2-C5 and mixed hydrocarbon value-added utilization project was completed and put into operation. The project was the world's first olefin project using the third-generation 1 million tons/year DMTO unit of the Dalian Chemical Institute of the Chinese Academy of Sciences. It added 1.5 million tons/year of methanol production capacity, 1 million tons/year of additional olefins, and 900,000 tons/year of polyethylene and polypropylene production capacity; starting in 2024, the company gradually promoted the Inner Mongolia Phase I coal-to-olefin project with 400,000 tons/year East Phase IV 500,000 Projects such as tons/year coal-to-olefin (including 250,000 tons/year EVA) were put into operation. While expanding the scale of production capacity, the company further consolidated its cost advantage. Compared with the Ningdong project, the cost of the company's Inner Mongolia project is expected to be further reduced due to the reduction in freight, enol ratio, and investment cost per ton.
Maintain a “Highly Recommended” investment rating. The company's net profit for 2024-2026 is estimated to be 8.044 billion yuan, 12.475 billion yuan, and 13.287 billion yuan, EPS is 1.10 yuan, 1.70 yuan, and 1.81 yuan, respectively. The PE corresponding to the current stock price is 15.0 times, 9.7 times, and 9.1 times, respectively. Maintain a “Highly Recommended” investment rating.
Risk warning: downstream demand falls short of expectations, raw material supply and price fluctuations, new production capacity falls short of expectations, and falling product prices.