Description of the event
Incident 1: On April 25, Rongsheng Petrochemical released its 2023 annual report, achieving operating income of 325.112 billion yuan, up 12.46% year on year; realized net profit of 1,158 billion yuan, down 65.33% year on year; realized net profit deducted from non-return mother of 820 million yuan, down 59.24% year on year; and achieved basic earnings per share of 0.12 yuan/share. Among them, the fourth quarter achieved operating income of 86.064 billion yuan, up 34.52% year on year; realized net profit to mother of 1,051 million yuan, up 149.78% year on year, down 14.83% month on month; realized net profit deducted from mother 950 million yuan, up 128% year on year and 24.48% month on month.
Incident 2: On the evening of April 29, Rongsheng Petrochemical released its 2024 quarterly report. The first quarter achieved operating income of 81.088 billion yuan, up 16.30% year on year, down 5.78% month on month; realized net profit of 552 million yuan, up 137.63% year on year, down 47.48% month on month; realized net profit without return to mother of 475 million yuan, up 130.18% year on year, down 50.00% month on month.
The year was clearly affected by fluctuations in crude oil. Refined oil products and aromatic hydrocarbons remained high. Looking at the whole year, revenue increased steadily, and profitability fluctuated. Zhejiang Petrochemical is the company's largest source of profit, achieving operating income of 26.200 billion yuan and net profit of 1,367 billion yuan for the full year of 2023. CICC achieved operating income of 21.658 billion yuan and net profit of 385.737 million yuan. By sector, the refining/chemical/PTA/ polyester chemical fiber sector achieved gross profit of 246.99/123.74/-3.40/472 million yuan respectively, with gross margins of 20.26%/10.16%/-0.64%/3.21%, respectively, +2.10/-0.22/+0.26/-0.02pct. Looking at the whole year, the company's performance was clearly affected by fluctuations in crude oil. The decline in oil prices in the first half of the year brought pressure to depreciate inventories. In the second half of the year, oil prices soared and fell. The impact of inventory profit and loss partially weakened, and profits improved. Looking at specific products, refined oil products maintained a relatively high boom throughout 2023 due to the continuous restoration of domestic and foreign travel demand, and Zhejiang Petrochemical fully benefited from the export index for refined oil products; with the phased end of supply investment, PX supply and demand improved significantly in 2023, and maintained good profits throughout the year; affected by poor demand and capacity expansion, the overall olefin sector in 2023 was under pressure.
Crude oil rose in the first quarter, and refining and chemical price spreads improved
There was a significant year-on-year improvement in the first quarter, and there was some month-on-month pressure. On the one hand, the 2024Q1 boost in downstream demand for chemicals compounded the cost support effect of crude oil was obvious. Olefin prices boosted, and the prices of aromatic hydrocarbons, refined oil products, and some coal chemical products were strong; second, crude oil rose slightly from the fourth quarter, bringing a certain amount of raw material inventory revenue. Third, the Spring Festival factor has an impact on product sales and revenue. We believe that throughout the year, crude oil will remain volatile at medium to high levels, profits are expected to continue at a high level due to improvements in supply and demand in the PX and polyester sectors, stable profits from refined oil products, bottoming out and slowly recovering, and overall profits are improving.
On the expense side, the expense ratio was stable in the first quarter of 2024, and the sales expense rate/management expense ratio was -0.03pct/-0.01pct/+0.76pct year-on-year.
Actively promote project construction, extend the chain, reduce oil and increase
The company can still guarantee future capital expenses along the path of extending the chain and repairing the chain, reducing oil and increasing the added value of products, thus driving medium- to long-term growth. During the reporting period, a number of new projects and new installations were launched one after another, including Zhejiang Petrochemical's 400,000 tons/year ABS unit, 800,000 tons/year PO/SM unit, 100,000 tons/year butadiene rare earth rubber, 70,000 tons/year nickel-butadiene rubber unit, 60,000 tons/year dissolved polystyrene butadiene rubber unit, 300,000-ton annual production of vinyl acetate plants, and Yongsheng Technology's 250,000 tons/year functional polyester film expansion project Production has been completed. In January 2024, the company announced that it plans to invest in the Jintang New Materials Project, with an estimated total investment of 67.5 billion yuan, including 3 million tons/year catalytic cracking unit, 600,000 tons/year aromatic hydrocarbon extraction unit, 200,000 tons/year POE unit, 40,000/250,000 tons/year phenol/acetone unit, 200,000 tons/year 1,3-propanediol unit, 40/880,000 tons/year PO/SM plant, etc.
For refining and chemical companies, we believe that competition in the field of new materials will have sufficient advantages. One is the first-mover investment advantage brought about by sufficient cash flow, the second is the efficient output brought about by high R&D investment, the third is the continuous cost advantage brought about by the advantages of integrated platforms, and the scarcity of raw material advantages will become more apparent in the context of tightening project approval.
Investment advice
As demand in the olefin sector fell short of expectations, we lowered the company's profit forecast. We expect Rongsheng Petrochemical's net profit to be 36.41, 90.27, 119.57 billion yuan (2024-2025 original value of 84.04 billion yuan, 10.613 billion yuan), EPS 0.36/0.89/1.18 yuan, corresponding PE to 31.18X/12.57X/9.49X. Maintain a buy rating.
Risk warning
(1) Risks caused by price fluctuations of raw materials and major products; (2) production safety risks;
(3) Environmental protection risks;
(4) Project commissioning progress falls short of expectations;
(5) Macroeconomic downturn.