Description of the event

The company released its report for the first quarter of 2024. In the first quarter of 2024, it achieved operating income of 58.39 billion yuan, an increase of 4.00%; net profit to mother of 2,139 billion yuan, an increase of 109.80%; and net cash flow from operating activities of 7.887 billion yuan, a year-on-year decrease of 33.93%.

Incident comments

Aromatic hydrocarbons and refined oil products maintain a high level of prosperity. Domestic: Travel demand continues to be high, and demand for refined oil products has increased dramatically; gasoline demand in the overseas refined oil market improved markedly during the seasonal peak season, driving a significant increase in aromatic hydrocarbon profitability. The company has high-end chemical products that are scarce domestically and have high added value, such as 5.2 million tons of PX design capacity per year, and refined oil products such as high-standard gasoline, diesel, and aviation kerosene. The aromatics sector has significantly benefited from the improvement in the popularity of aromatic hydrocarbons and refined oil products.

A major chemical enterprise with a deep integration of “oil, coal and chemicals” unique in the industry. For the first time in the industry, four major production capacity clusters of 20 million tons of refining and chemical, 5 million tons of coal chemicals, 1.5 million tons of ethylene, and 12 million tons of PTA were arranged in the same industrial park, which significantly optimized redundant processing processes such as transportation, storage and cooling, and saved a large amount of intermediate operating costs and logistics transportation costs. At the same time, the company has its own largest coal hydrogen production plant in the park, supplying 250,000 tons of scarce pure hydrogen raw materials at low cost every year, and has built a high-power self-owned power plant with a total of 520 MW of energy efficiency leading in the industry, providing the refinery with a large amount of cheap electricity and steam at all levels. It has operated 2 300,000 ton crude oil terminals, 6 million ton self-prepared crude oil tanks, and various other public engineering facilities for raw materials, finished products, tanks, storage, etc., significantly reducing various production and operation costs.

Reduce capital expenses, increase dividend ratios, and enhance shareholder returns. The company attaches great importance to a reasonable return on investment for investors. Since the restructuring and listing, the company has maintained a high percentage of cash dividends. The amount of cash dividends in 2023 accounted for 56.07% of net profit to mother in the consolidated statement. The company's “Shareholder Return Plan for the Next Five Years (2020-2024)” stipulates a balance ratio of < 70%, and the annual cash dividend is not less than 50% of the distributable profit achieved in that year. Starting in the second half of 2024, the company will also basically end the peak period of this round of investment, construction and capital expenditure. Subsequent business focus will place more emphasis on “optimizing operations, reducing debt, and strengthening dividends” under refined cost control. As the company's debt ratio continues to decline, the dividend ratio is expected to continue to rise.

Projects such as fine chemicals and new materials have been put into operation one after another. (1) 1.6 million tons/year high-performance resin and new materials project, which is expected to be fully put into operation in the 2nd quarter of 2024; (2) Functional film project: 12 functional film projects at the Suzhou Fenhu base have been put into operation one after another; (3) Lithium battery diaphragm project: the annual output of the 440 million square meter high-strength wet lithium battery separator project at the Yingkou base was completed in early June 2023. The project is expected to reach production at the Nantong factory in the first half of 2024. Ward The annual output is 1.2 billion square meters of wet lithium battery separators and 600 million square meters of dry lithium battery separators. One production line already in trial production of the project is expected to reach production in the first half of 2024, and the rest of the production lines are expected to begin trial production one after another in 2024.

Without considering future changes in share capital, the company's net profit from 2024 to 2026 is expected to be 10.19 billion yuan, 12.23 billion yuan, and 14.11 billion yuan, respectively. Corresponding to the closing price PE on April 22, 2024, PE is 10.8X, 9.0X, and 7.8X, respectively, maintaining a “buy” rating.

Risk warning

1. International oil prices fell sharply; 2. The growth rate of downstream demand fell short of expectations; 3. The progress of the project fell short of expectations.