Introduction to this report:

The company's first-quarter results were in line with expectations, and downstream demand for filament was strong. New filament production capacity is limited in 2024, and the price gap between the industry's supply and demand pattern is expected to widen.

Key points of investment:

Maintain the shareholding rating and raise the target price: Considering the rising prosperity of the filament industry, we maintained the company's 24-26 EPS of 1.22/1.46/1.80 yuan. Refer to the comparable company's 2024 16XPE increase target price of 19.52 yuan (originally 18.30 yuan), maintaining the “gain” rating.

2024Q1 performance was in line with expectations: The company achieved revenue of 14.4 billion yuan in 2024Q1, +15.53% year on year, net profit to mother of 275 million yuan, +45% year on year, profit after deduction of 230 million yuan, and +103% year over year. The company's first quarter results were in line with expectations. Non-recurring profits and losses are mainly partial government subsidies and impairment of raw material-side assets.

Downstream demand is improving, and the price spread is expected to widen: downstream demand will be strong after the 2024 Spring Festival, and the operating rate of looms will increase, and the price of filament will rise sequentially. The average price of 2024Q1POY/FDY/DTY was 6819/7357/7951 yuan/ton, respectively, +2.53%/+2.10%/+1.71% month-on-month. The high oil price background boosts expectations of downstream inventory replenishment, supported by downstream demand, and the strong will of leading companies to raise prices, and the filament price spread is expected to widen further.

The pattern of the filament industry is improving, and the layout of production expansion is upward flexible: After experiencing the stock buildup - storage removal - recovery cycle in 2023, the current supply and demand pattern is improving, and the industry remains in a high boom range. In 2024, the new production capacity of filament was limited, the growth rate of production capacity slowed down, and the concentration of the small and medium-sized enterprises accelerated the clearance industry further increased. The company plans to produce 2.5 million tons of differentiated polyester fiber materials and 100,000 tons of polyester film materials per year. It is estimated that the first phase will release a total of 650,000 tons over 25 years. The pace of production capacity release is in line with the industry's growth rate, and differentiated product structures guarantee profit margins. The new project will not change the industry's supply and demand pattern, and the company is expected to gain medium- to long-term profit elasticity among leading polyester filament companies.

Risk warning: Downstream demand falls short of expectations, and oil prices fluctuate greatly.