Incident: The company released its 2023 annual report, achieving operating income of 325.1 billion yuan, +12% year-on-year, and net profit to mother of 1.16 billion yuan, -65% year-on-year. Among them, the 23Q4 single quarter achieved net profit of 1.05 billion yuan, turning a year-on-year loss into a profit of -15% month-on-month. Overall performance was in line with expectations.
Refining and chemical profits declined year on year, and the performance in the second half of the year was better than in the first half. 1) Zhejiang Petrochemical and CICC are the operating entities of the company's refining and chemical sector. Among them, in 2023, Zhejiang Petrochemical/CICC achieved net profit of 1.37/0.4 billion yuan, respectively. Of these, during the 23H2 period, Zhejiang Petrochemical/CICC achieved net profit of 31.2/230 million yuan, respectively, and +4.887/430 million yuan, respectively. 2) Specifically, oil prices continued to decline during the 23H1 period, putting pressure on the company to depreciate its inventory. At the same time, after Zhejiang Petrochemical Phase II was completely consolidated, depreciation accruals also increased. After entering 23H2, oil prices first rose and then fell. The overall impact on inventory profit and loss after hedging was less than in the first half of the year. At the same time, it has benefited from improved terminal demand, marginal recovery in chemical price spreads, expansion of room for export of refined oil products, and an overall recovery in refining and chemical profits.
Refined oil products and aromatic hydrocarbons remained strong, and the profit margin for olefins bottomed out. 1) Refined oil products: Benefiting from the rapid release of travel demand after the epidemic and the profit recovery of refined oil products in 2023, gasoline/diesel production in China was +13.9%/+14.1% year-on-year, respectively, and +11%/+2% compared to the crude oil price difference, respectively. 2) Aromatics:
Driven by an increase in downstream polyester operating rate and phased oil transfer demand, PX supply and demand improved in 2023, compared to +21% year-on-year with the crude oil price difference. 3) Olefin: Driven by the downturn in the real estate cycle and the release of new production capacity on the supply side, the profit of olefin is operating under pressure. Among them, LLDPE/polypropylene price differences compared to crude oil in 2023 were -2%/-5%, respectively. 4) After entering 2024, with the gradual elimination of industry inventories, the price spread of downstream refining and chemical products improved sequentially. According to Wind statistics, during the 24 Q1 period, the price difference between gasoline, diesel, PX, pure benzene, LLDPE/ polypropylene compared to crude oil was +0%/-8%/+4%/+24%/+1%/+4%, respectively. Looking backwards, against the backdrop of slowing production expansion, refined oil products and aromatic hydrocarbons were strongly supported, and olefin profits are expected to bottom out along the margins of demand.
Cooperation with Saudi Aramco is deepening, and the new materials industry continues to grow. 1) Relying on the Zhejiang Petrochemical platform, the company extended the layout of three major new material projects downstream. Of these, 3 were put into operation one after another in #乙烯及下游化工品项目已于23. The high-performance resin project and the high-end new material project are progressing in an orderly manner.
2) In addition, the company is actively developing a global layout, introducing Saudi Aramco as a strategic investor in 2023. In April 2024, the company further signed a “Cooperation Framework Agreement” with Saudi Aramco to discuss matters such as the acquisition of 50% of Saudi Aramco's shares in Jubail Refining and Chemical Company and Saudi Aramco's acquisition of no more than 50% of CICC's shares. At the same time, the two sides plan to jointly develop the Rongsheng New Materials (Zhoushan) project, with a total investment of 67.5 billion dollars. It is planned to expand the layout of new material products such as PEO, PTT, CHDM, and PCT, and further highlight the refined properties.
Profit forecast and investment rating: Taking into account the pace of demand recovery, we adjusted the company's 2024-2025 net profit forecast to be 56/89 billion yuan (previously, 65/10.7 billion yuan), and added the 2026 net profit forecast to 10.4 billion yuan. Based on the closing price on April 26, corresponding PE 20.0/12.7/10.9 times, respectively, to maintain the “buy” rating.
Risk warning: raw material prices fluctuate, demand recovery falls short of expectations, and competition in the refining and chemical industry intensifies