Incidents:
On April 25, 2024, Dongfang Shenghong released its 2023 annual report: achieved operating income of 140,440 billion yuan, +119.87% year on year; realized net profit of 717 million yuan, +17.35% year on year; realized net profit without return to mother of 217 million yuan, +155.20% year on year; gross sales margin 11.27%, +3.60 pcts year on year, net sales margin of 0.51%, -0.34 pcts year on year; net cash flow from operating activities was 8.343 billion yuan.
In the 2023Q4 quarter, the company achieved operating income of 36.797 billion yuan, +114.37% year over month; realized net profit to mother of -1,762 billion yuan, 2022Q4 of -1,029 million yuan, and 2023Q3 of 798 million yuan; net profit after deducting net income to mother of 1,836 billion yuan; and net cash flow from operating activities of 2,321 billion yuan. Gross sales margin was 6.64%, +1.83 pct year on month, -5.23 pct month on month; net sales margin was -4.80%, +1.23 pct year on year, -6.91 pct month on month.
Investment highlights:
The 16 million tons/year integrated refining and chemical project was fully released. Net profit returned to mother in 2023 was +17% year-on-year. The overall crude oil price fluctuated and declined. The fall in energy prices caused the price of most petrochemical products to fall, causing the entire petrochemical industry to “increase production and sales without increasing profit” in 2023. In 2023, the company's Shenghong Refining and Chemical's 16 million tons/year integrated refining and chemical project was fully released. As the core raw material supply platform for the company's “1+N” strategic industrial layout, the entire process was successfully completed and fully put into operation in December 2022. In 2023, the company achieved operating income of 140,440 billion yuan, +119.87% year-on-year; realized net profit of 717 million yuan, +17.35% year-on-year, and +169 million yuan year-on-year. In 2023, the company achieved gross profit of 15.826 billion yuan, +10.934 billion yuan in taxes and surcharges, +7.960 billion yuan, plus 7.958 billion yuan, other income of 594 million yuan, +481 billion yuan, and asset impairment losses of -210 billion yuan, mainly calculated inventory impairment losses. In 2023, the company achieved a net cash flow of 8.343 billion yuan from operating activities and 1,391 billion yuan in 2022, mainly due to the year-on-year increase in cash received from sales of goods and provision of services in 2023. By sector, the company achieved revenue of 29.033 billion yuan in 2023, achieving sales volume of 4.2481 million tons, polyester yarn achieving revenue of 22.949 billion yuan, achieving sales volume of 2.577 million tons, and other new petrochemical and chemical materials achieving revenue of 85.592 billion yuan, achieving sales volume of 149.19 million tons. In terms of price, the company's product pricing followed the market. The sales prices of the main products showed a trend of falling in the second quarter, rebounding in the third quarter, and falling back in the fourth quarter.
In terms of period expenses, the company's sales expenses rate in 2023 was 0.24%, +0.10 pcts year on year, management expenses ratio 0.62%, +0.41 pcts year on year, R&D expenses rate 0.48%, +0.31 pct financial expense ratio 2.49% year on year, and +0.58 pct year on year.
With 2023Q4, the company achieved operating income of 36.797 billion yuan, +114.37% year-on-month, and -2.51% month-on-month; realized net profit to mother was -1,762 billion yuan, and 2023Q3 net profit to mother was 798 million yuan, or -2,560 million yuan month-on-month. With 2023Q4, the company achieved gross profit of 2,443 billion yuan, tax and surcharges of 2,026 billion yuan, -278 million yuan month-on-month, other income of 65 million yuan, -393 million yuan month-on-month, asset impairment losses of 1,244 million yuan, month-on-month -898 million yuan, and income tax of -811 million yuan, and 905 million yuan month-on-month.
It is proposed to introduce a war investment in Saudi Arabia and Aramco to strengthen cooperation in the petrochemical industry
On September 28, 2023, the company announced that it signed a framework agreement with Saudi Aramco's subsidiary Aramco Asia. The main elements of the framework agreement include: Saudi Aramco or its related parties intend to become strategic investors in Jiangsu Shenghong Petrochemical Industry, a wholly-owned subsidiary of the company, and intend to hold minority shares in the target company; the two sides intend to cooperate in long-term procurement and supply of raw materials such as crude oil, sales of chemical products and fuel products, and licensing of high value-added technology. Saudi Aramco is one of the world's largest oil production companies and one of the company's important suppliers of crude oil and other raw materials. Through the partnership with Saudi Aramco, it will effectively guarantee the company's raw material supply, achieve strong alliances in product sales, technology, etc., accelerate the company's internationalization process, and help turn the company into a world-class energy and chemical enterprise with global competitiveness.
Focusing on the field of new energy and new materials to accelerate material layout and promote energy transformation, Sierbon Petrochemical is the only company in the country that also has independent production technology for photovoltaic-grade EVA and POE. In September 2022, the 800 tons/year POE pilot plant of Sierbon Petrochemical successfully produced qualified products, and the project was successfully put into operation at one time. It is expected that the POE localization and industrialization process is expected to accelerate for some time to come. In addition, the company has developed a layout in the field of upstream raw materials for lithium-ion batteries, and related products cover a wide range of key aspects such as cathode materials, battery separators, and electrolyte solvents. The company has now built a 20,000 tons/year ultra-high molecular weight polyethylene (UHMWPE) project. The project was successfully put into operation and successfully put into operation at the end of 2022. UHMWPE is a thermoplastic engineering plastic with excellent performance. It is impact-resistant, wear-resistant and corrosion-resistant, and is the main raw material for lithium battery diaphragms. The division's 100,000 tons/year vinyl carbonate and dimethyl carbonate (EC/DMC) plant was also successfully put into operation in March 2024. In 2023, the company put into operation a carbon dioxide green methanol plant, building the first green carbon negative industrial chain of “carbon dioxide to new energy materials” in the industry.
Polyester filaments have achieved differentiated competition, and there is broad space for recycled polyester. According to statistics from the China Chemical Fiber Industry Association, China's total chemical fiber output reached 68.72 million tons in 2023, with a cumulative year-on-year increase of 8.5%. Among them, polyester filament production was 45.09 million tons, an increase of 8.5% over the previous year. The concentration of the polyester filament industry is gradually increasing. CR6 production capacity accounts for nearly 70% of the total production capacity of the industry. It is expected that the concentration of the polyester filament industry will increase further in the future. Competition in the polyester filament industry is shifting from “price and quality” competition to comprehensive strength competition with “high technology as the lead, brand competition as the focus”.
The company has established chemical fiber production bases in Suzhou and Suqian respectively, with a production capacity of 3.55 million tons/year of polyester filament. The products are mainly differentiated DTY. With the successful commissioning of Ruibang Technology Phase II's 250,000 tons of recycled fiber production capacity at the end of 2023, the company currently has a total production capacity of 550,000 tons/year of recycled polyester fiber, ranking first in the world. As a leading enterprise in the recycled polyester fiber industry, the company relied on independent research and development to solve a series of technical problems such as key technology for melt viscosity homogenization, high-capacity production of recycled fibers, and long-term polymerization operation, and pioneered the world's first direct melt spinning device from bottle to spinning. Downstream customers have widely covered more than 30 well-known brands such as Decathlon, Nike, Uniqlo, Adidas, and Li Ning. The recycled fiber terminal consumer market is accelerating popularization and promotion.
Full coverage of “oil head”, “coal head” and “gas head” olefins, deepening the “1+N” industrial layout The company is a world-leading energy and chemical enterprise that has vertically integrated the entire industry chain and has thoroughly laid out new energy and new materials businesses. As the core raw material supply platform for the company's “1+N” strategic industrial layout, Shenghong Refining & Chemical's 16 million tons/year integrated refining and chemical project has the largest single unit pressure relief device in China, with a processing capacity of 16 million tons/year. The main products include basic chemical products such as 1.1 million tons/year of ethylene, 1.8 million tons/year of ethylene glycol, 300,000 tons/year of ethylene acetate, and 40/250,000 tons/year of phenol/acetone.
The company carried out scientific and technological research in key fields such as high-end polyolefin materials, fine chemicals, and new energy materials, and achieved technical breakthroughs. The fourth acrylonitrile plant was put into operation, and the total production capacity rose to 1.04 million tons/year, ranking first in the world. The self-developed POE pilot test was successful, and the 100,000 tons/year industrialization plant construction work is being implemented; technical advantages have led the million-ton EVA project to continue to develop, making continuous progress towards the goal of “building the world's largest photovoltaic film production base”. High-end new material projects such as 250,000 tons/year recycled polyester fiber, 130,000 tons/year PETG, and 90,000 tons/year MMA have been put into operation one after another. The main raw materials have achieved basic self-supply, and the advantages of upstream and downstream integration are remarkable. We are optimistic about the company's long-term development.
Profit forecasts and investment ratings estimate that the company's 2024-2026 revenue will be 1533.00, 165.636 billion yuan, and net profit to mother will be 55.10, 67.13, and 8.239 billion yuan respectively. The current stock price corresponds to 12, 10, and 8 times PE, respectively. The company is a world-leading energy and chemical enterprise that has vertically integrated the entire industry chain and has thoroughly laid out new energy and new materials businesses. Considering the company's future growth, it will maintain a “buy” rating.
Risks suggest that new production capacity contributes to performance falling short of expectations, fluctuations in raw material prices, environmental protection and production safety risks, sharp economic decline, industry policy risks, and exchange rate fluctuations.