Incidents:
On April 26, 2024, Tongkun Co., Ltd. released its 2023 annual report: achieved operating income of 82.64 billion yuan in 2023, up 33.3% year on year; realized net profit of 797 million yuan, up 512.1% year on year; gross sales margin of 5.06%, up 1.8 pcts year on year, net sales interest rate 0.99%, up 0.8 pct year on year; net cash flow from operating activities was 3.12 billion yuan.
In the Q4 quarter of 2023, the company achieved operating income of 20.898 billion yuan, +41.16% year over month, -15.88% month on month; realized net profit to mother was -107 million yuan, -181.8% year on year, -113.4% month on month; and net cash flow from operating activities was 2,798 billion yuan. The gross sales margin was 1.98%, +6.9 pcts year over year and -4.4 pcts month over month. Net sales margin was -0.49%, +11.7 pcts year over year and -3.7 pcts month over month.
On April 29, 2024, Tongkun Co., Ltd. released its 2024 quarterly report. In the Q1 quarter of 2024, the company achieved operating income of 21.111 billion yuan, +32.66%, and +1.02% month-on-month; realized net profit to mother was 580 million yuan, turning losses into profits year over year and month over month; and net cash flow from operating activities was -5321 billion yuan. Gross sales margin was 6.71%, +1.9 pcts year over year and +4.7 pcts month over month.
Net sales margin was 2.77%, +5.7 pcts year over year and +3.3 pcts month over month.
Key points of investment:
In 2023, the company's production and sales increased significantly, and operations were substantially improved
In 2023, the company achieved net profit of 797 million yuan, a sharp increase of 512.1% over the previous year. Among them, the participating company Zhejiang Petrochemical confirmed investment income of 272 million yuan. On the one hand, the polyester filament industry is gradually recovering. Although the overall production expansion of the industry was large in 2023, thanks to the increase in downstream demand, the company's profit margin for polyester filament recovered year-on-year in 2023; on the other hand, the bottom of the company bucked the trend, and production and sales increased markedly. By product sector, in 2023, POY's revenue was 53.2 billion yuan, +31% year over year, gross margin was 5.22%, up 2.3 pcts year on year, achieving sales volume of 7.84 million tons, up +35% year on year; FDY revenue was 112 billion yuan, +37% year on year, gross margin was 9.81%, up 2.4 pcts year on year, achieving sales volume of 1.74 million tons, +38% year over year; DTY revenue was 8.2 billion yuan, gross margin was 2.53%, up 2.1 pcts year on year. Sales volume of 990,000 tons, +27% year-on-year. However, due to the addition of 3 million tons/year of PTA production capacity in 2023, PTA export sales volume was 910,000 tons in 2023, achieving operating income of 5.2 billion yuan and gross margin of -0.96%. Losses in the PTA sector had a negative impact on the company's overall profit. In addition, in 2023, the company's sales/management/finance expense rates were 0.14%/1.64%/0.95%, respectively, with year-on-year changes of -0.02 pct/-0.29 pct/+0.26 pct.
2024Q1's profit continued to improve, and the investment income of the participating company Zhejiang Petrochemical increased in Q1 in 2024 to achieve net profit of 580 million yuan, an increase of 1.07 billion yuan over the previous year, and an increase of 690 million yuan over the previous year. Of these, 2024Q1 confirmed investment income of 250 million yuan for the participating company Zhejiang Petrochemical.
On the one hand, the profit level of the company's main products increased, with gross profit of 1.42 billion yuan, an increase of 650 million yuan over the previous year and an increase of 1.0 billion yuan over the previous year. According to the operating data disclosed by the company, in Q1 2024, POY's revenue was 13.2 billion yuan, +41% month-on-month, -13% month-on-month, sales volume was 1.94 million tons, +37% year-on-month, and -15% month-on-month; average price was 6819 yuan/ton, +2.4% month-on-month; FDY revenue was 3.2 billion yuan, +42% month-on-month; sales volume was 420,000 yuan, +37%, month-on-month, +4% month-on-month; D-ton +2% TY's operating income is 1,972 billion yuan, +15% YoY, -15% month-on-month, sales volume was 240,000 tons, +13% YoY, -17% month-on-month. The average price was 8,406 yuan/ton, +2% YoY and +3% month-on-month. On the other hand, on a year-on-year basis, the company's management/R&D/financial expenses increased by 0.6/1.1/150 million yuan, respectively, and other income/investment income/net income from fair value changes increased by 0.9/70/60 million yuan, respectively. The year-on-year increase in investment income was clearly mainly due to improvements in the operation of the participating company Zhejiang Petrochemical. On a month-on-month basis, corporate income tax increased by 310 million yuan month-on-month.
Lay out Indonesian refining and chemical projects upward to support the company's medium- to long-term growth
On June 27, 2023, the company issued an announcement to launch the Taikun Petrochemical (Indonesia) North Refining and Chemical Integration Project in Indonesia to continue to expand upstream. Taikun Petrochemical plans to invest US$8.624 million to build 16 million tons/year of refined oil, 4.85 million tons/year of p-xylene, 520,000 tons/year of acetic acid, 1.7 million tons/year of benzene, 450,000 tons/year of sulfur, 700,000 tons/year of propane, 720,000 tons/year of n-butane, 500,000 tons/year of polyethylene, and 240,000 tons/year of EVA (photovoltaic grade), 240,000 tons/year of polypropylene, etc. According to the company's announcement, after completion, the project can achieve an average annual revenue of 10.438 billion US dollars and an average annual profit of 1,328 billion US dollars after tax. Among them, Huacan International holds 90% of Taikun Petrochemical's shares, and the company holds 51% of Huacan International's shares. When the project is implemented, it is expected to help the company grow in the medium to long term.
The profit forecast and investment rating are combined with crude oil price trends, and taking into account the price difference of the company's main products, we have lowered the company's profit forecast appropriately. The company's 2024/2025/2026 operating income is 864, 949, and 105.1 billion yuan respectively, and net profit to mother is 27.90, 41.76, and 5.653 billion yuan, respectively, corresponding to PE 12, 8, and 6 times, respectively. As a leader in the polyester filament industry, the company is expected to benefit from future optimization of the competitive pattern of the polyester filament industry. Maintain a “buy” rating.
Risks suggest that the competition pattern has intensified due to the expansion of production in the industry, project approval falls short of expectations, progress in new production capacity construction falls short of expectations, terminal demand is lower than expected, raw material prices fluctuate, and environmental protection policies change.