Brief performance review
Rongsheng Petrochemical released its report for the first quarter of 2024 on April 29, 2024. In 2024Q1, the company achieved operating income of 81.088 billion yuan, an increase of 16.30% over the previous year and a decrease of 5.78% over the previous year; realized net profit of 552 million yuan, an increase of 137.63% over the previous year and a decrease of 47.43% over the previous year. The results were generally in line with expectations.
Management analysis
Q1 Zhejiang Petrochemical's performance is still in a state of decline. Along with the correction of chemical price differences, Zhejiang Petrochemical achieved net profit of 1,255 billion yuan (calculated based on investment income from Tongkun Co., Ltd.), an increase of 149.10% year-on-year and 25.94% month-on-month; as terminal demand improved, product price differences were gradually repaired, and Zhejiang Petrochemical's performance is expected to improve further. 2024Q1
Currently, demand for olefin-based chemicals is still bottoming out. The price difference between 2024Q1 polyolefin and crude oil was 2869.54 yuan/ton, a year-on-year narrowing of 10.11% and a month-on-month narrowing of 0.47%. Meanwhile, the price spread of 20244Q1PTA products fluctuated at medium to low levels. The average price spread of PTA-PX in 2024Q1 was 323.62 yuan/ton, up 1.75% year on year and 1.38% narrow month on month.
The company has a large production capacity for olefin chemicals. With the recovery in demand for chemical terminals, the price difference of the company's products is expected to be repaired, and a large number of chemical products may support the company's performance recovery in the future.
The key sector PX strongly supports the recovery of the company's performance: 2024Q1 international crude oil prices fluctuated upward, and the average price of Brent crude oil futures reached 81.76 US dollars/barrel. The 2024Q1PX-crude oil price spread continued to be high. The 2024Q1PX-crude oil price spread reached 3204 yuan/ton, up 9.73% year on year. Overall, it remained at a medium to high price spread level. Rongsheng Petrochemical holds 51% and 100% of Zhejiang Petrochemical's shares respectively. Zhejiang Petrochemical has 40 million tons/year of crude oil processing capacity and 8.8 million tons/year of PX production capacity, while CICC has 1.6 million tons/year of PX production capacity. As terminal demand continues to rise, the PX sector is expected to support the continued recovery of the company's performance.
A number of new material projects are progressing smoothly, contributing to high-quality development, and will have high growth potential in the future: on the basis of the existing complete industrial chain, the company actively lays out new material-related product projects. Construction of the Jintang New Materials Project, which was invested in construction, has now begun, and related work is progressing in an orderly manner. Rongsheng New Materials (Taizhou) Project Company has been established, focusing on high-end polyolefins, special rubbers and elastomers, engineering plastics, fine chemicals and specialty chemicals, and cutting-edge new materials. Currently, early work is progressing in an orderly manner. The company's Zhejiang Petrochemical Phase III projects with an annual output of 1.4 million tons of ethylene and downstream chemicals, high-performance resin projects, high-end new materials projects, and Shengyuan Chemical Fiber Phase II are progressing in an orderly manner. At the same time, the company is actively developing a global layout. Following the introduction of Saudi Aramco as a strategic investor in 2023, the two sides signed a “Cooperation Framework Agreement” in April 2024. As cooperation between the two sides deepens, it can form healthy complementarity and enhance the overall competitiveness of the enterprise. The company has deployed a number of new energy material products such as EVA, POE, DMC, PC and ABS, further expanding the company's high-end chemical materials and chemical production capacity, and the company has high growth potential in the future.
Profit forecasting
We are optimistic about the recovery in performance brought about by the recovery in demand and the 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. The company's net profit for 2024-2026 is 4 billion yuan/6.5 billion yuan/8.5 billion yuan, corresponding EPS is 0.40 yuan/0.64 yuan/0.84 yuan, and the corresponding PE is 29.3X/18.0X/13.7X, maintaining a “buy” rating.
Risk warning
(1) Changes in crude oil prices affect the company's profit estimates; (2) risk of poor terminal demand; (3) risk of project construction falling short of expectations; (4) risk of large fluctuations in the US dollar exchange rate; (5) risk of force majeure.