FY23 and 1Q24 results are in line with our expectations
The company announced FY23 and 1Q24 results: FY23 revenue of 82,640 billion yuan, +33.3% year-on-year; net profit to mother of 797 million yuan, +539.1% year-on-year. 4Q23 revenue was 20.898 billion yuan, +41.2% year over year, -15.9% month-on-month; net profit to mother - 107 million yuan. 1Q24 revenue was 21.111 billion yuan, +32.7% year over month, and +1.0% month on month; net profit to mother was 580 million yuan, reversing losses year over month. The results were in line with our expectations.
FY23 Zhejiang Petrochemical's investment income was 272 million yuan (of which 4Q23 was about 198 million yuan), and the company's polyester filament industry chain made a profit of about 525 million yuan, with a net profit of about 51 yuan per ton (of which the 4Q23 polyester filament industry chain lost about 305 million yuan and lost about 101 yuan per ton). 1Q24 Zhejiang Petrochemical's investment income was 255 million yuan, the company's polyester filament industry chain profit was about 329 million yuan, and the net profit per ton was about 127 yuan.
The company announced the 2024-2026 shareholder return plan. The cumulative profit distributed in cash in the last three years is not less than 30% of the annual distributed profit achieved in the last three years, and the proportion of cash dividends in profit distribution is arranged according to the company's development stage and future capital use plans.
Development trends
The company's integrated advantage led, and the profit of the main business recovered month-on-month. In 2023, the company added 390/300/600,000 tons of polyester filameter/PTA/MEG production capacity, leading the cost advantage of industrial chain integration. 1Q24 filament, PTA/MEG all contributed profitably. By deploying filament plants near the PTA plants of Jiaxing Petrochemical and Jiatong Energy, the company can significantly reduce PTA's transportation, storage, packaging costs and energy consumption losses, and make full use of P8 and P8++ thermal energy generation to supply electricity to nearby filament plants. The net profit per ton of 1Q24's polyester filament industry chain was recovered year-on-year (+116 yuan/ton, +229 yuan/ton month-on-month).
The high operating rate of leading filament companies affects the upward elasticity of the 1H24 filament boom. Leading polyester filament companies maintained a high operating load after the Spring Festival. According to CCF data, the operating rate of direct-spun filament in March-April was basically high between 92-94%, up from about 10% in the same period last year. The industry maintained a high load, which affected the upward elasticity of polyester filament price differentials. However, due to inventory earnings, the company's actual profit was better than the spread performance.
The number of downstream preparation days fell to a low level. There was little downward pressure on the 2Q24 filament price difference, and there is still an upward opportunity for filament in the second half of the year. On the demand side, downstream filament spinning and weaving companies also maintained a high operating rate after the Spring Festival; according to CCF data, the operating rate of comprehensive laminating in March-April was around 92-95%, and the operating rate of looms was around 80%. However, before the Spring Festival, downstream enterprises had already prepared some goods, and procurement of filament was relatively lackluster; currently, the inventory of downstream raw materials has reached a low level during the year. The number of days to prepare filament raw materials is about a week, and demand for replenishment is increasing. Although the second quarter is the traditional low season for filament, we believe that with the recovery in downstream procurement, there is not much downward pressure on the filament price spread. Considering that there is no new production capacity in the 1-3Q24 industry, the supply and demand pattern is relatively good, and the third quarter is the traditional peak season, we believe there is still an opportunity for the filament boom to rise.
Profit forecasting and valuation
Net profit for 2024/25 was reduced by 15.3%/16.6% to 3.143 billion yuan/4.911 billion yuan due to refining and chemical profit recovery falling short of expectations. The current stock price corresponds to 10.6 times/6.8 times the 2024/25 price-earnings ratio. Maintaining an outperforming industry rating, we are optimistic about recovering the long silk economy as the supply and demand pattern improves, and maintain the target price of 16.9 yuan, which corresponds to a price-earnings ratio of 13.0 times/8.3 times 2024/25. There is 22.7% upside compared to the current stock price.
risks
Long silk's boom is sluggish; Zhejiang Petrochemical's profits fall short of expectations; Indonesian project approval progress falls short of expectations.