Brief performance review
Rongsheng Petrochemical released its 2023 annual performance report on April 25, 2024. For the full year of 2023, the company achieved operating income of 325.1 billion yuan, an increase of 12.46% over the previous year, and realized net profit of 1,158 billion yuan, a year-on-year decrease of 65.33%. Among them, 2023Q4 achieved operating income of 86.064 billion yuan, up 12.25% from the previous month, and realized net profit to mother of 1,051 billion yuan, a decrease of 14.88% over the previous month. The results were generally in line with expectations.
Management analysis
The performance of Zhejiang Petrochemical and CICC is under pressure, and the repair of product price differences may improve performance: the performance of important subsidiaries Zhejiang Petrochemical and CICC will recover in 2023. For the full year of 2023, Zhejiang Petrochemical achieved net profit of 1,367 billion yuan, a year-on-year decrease of 77.41%; CICC achieved net profit of 39 million yuan, an increase of 108.10% over the previous year. As terminal demand improves, product price differences are gradually fixed, and Zhejiang Petrochemical's performance is expected to be further improved.
Demand for olefin-based chemicals is bottoming out, and the refining sector is booming or continues to support performance recovery: the average price difference between polyolefin and crude oil in 2023 was 3008 yuan/ton, up 7.12% year on year. In 2023, PTA product spreads fluctuated at medium to low levels for a long time, and 2023Q4 has been repaired. The average price spread of PTA-PX in 2023 was 309 yuan/ton, a year-on-year narrowing of 24.74%. The company has a large production capacity for olefin chemicals. As demand from chemical terminals picks up, a large number of chemical products may support the company's performance recovery in the future. Meanwhile, the domestic refining sector continues to be strong. The average cracking price difference for diesel/gasoline/aviation kerosene in 2023 was 912 yuan/1129 yuan/2,597 yuan/ton, respectively. The PX-crude oil price spread continued to be high. In 2023, the PX-crude oil price spread reached 3204 yuan/ton, up 9.73% year on year. Zhejiang Petrochemical has 40 million tons/year of crude oil processing capacity and 8.8 million tons/year of PX production capacity, CICC has 1.6 million tons/year of PX production capacity, and Rongsheng Petrochemical holds 51% and 100% of Zhejiang Petrochemical's shares respectively. Continued strength in the refining sector is expected to support the continued recovery of the company's performance.
A number of new material projects have progressed smoothly & signed a “Cooperation Framework Agreement” with Aramco and the United States. The future has high growth potential: on the basis of the existing complete industrial chain, the company actively lays out new material-related product projects. Zhejiang Petrochemical's third phase ethylene and downstream chemical projects, high-performance resin projects, high-end new materials projects, and Shengyuan Chemical Fiber Phase II projects are progressing in an orderly manner. A number of new energy material products such as EVA, POE, DMC, PC and ABS have been deployed, further expanding the scale of the company's high-end chemical materials and chemical production capacity, enhancing the overall competitiveness of the company, and the company's performance is expected to continue to recover in the future. Meanwhile, after the signing of the Memorandum of Understanding between the company and Saudi Aramco, the two sides actively promoted cooperation. On April 23, 2024, the company issued an announcement stating that it had reached agreement on some matters and signed a “Cooperation Framework Agreement”. The two sides plan to separately sell and purchase 50% of each of Rongsheng Petrochemical's wholly-owned subsidiary CICC and Saudi Aramco's wholly-owned subsidiary SASREF, and to jointly develop CICC and SASREF expansion projects in proportion to the equity ratio. The two sides continue to promote in-depth cooperation and continue the good trade momentum between the two sides, which can form healthy complementarity.
Profit forecasting
We are optimistic about performance recovery brought about by the recovery in demand and potential performance growth brought about by the company's new material production capacity, but currently demand for olefin chemicals is still in the early stages of recovery, so we lowered our 2024 profit forecast by 11%. We expect the company's net profit to be 4 billion yuan/6.5 billion yuan/8.5 billion yuan for 2024 to 2026, corresponding EPS is 0.40 yuan/0.64 yuan/0.84 yuan. The corresponding PE is 27.6X/17.0X/13.0X, maintaining a “buy” rating.
Risk warning
(1) Risk of uncertainty in the implementation of Saudi cooperation projects; (2) changes in crude oil prices affecting the company's profit estimates; (3) risk of poor terminal demand; (4) risk of project construction falling short of expectations; (5) risk of large fluctuations in the US dollar exchange rate; and (6) risk of force majeure.