Company announcement: The company released its 2024 quarterly report. In the first quarter of 2024, it achieved operating income of 8.227 billion yuan (YoY +22.19%, QoQ -5.82%), net profit attributable to mother of 1,421 billion yuan (YoY +19.89%, QoQ -19.26%), after deducting net profit of 1,482 billion yuan (YoY +15.79%, QoQ -17.82%). The performance is slightly lower than expected.
The 24Q1 performance was slightly lower than expected, mainly because the coking sector was dragged down a lot by the downside. According to the company's announcement, in the first quarter of 2024, the sales volume of the company's core products polyethylene, polypropylene, and coke was 29.53, 26.76, and 1,749,500 tons, respectively, +11.05, +9.03, and +173,900 tons, respectively. The average prices of polyethylene, polypropylene, and coke were 6924, 6524, and 1,533 yuan/ton, respectively, -2.52%, -5.90%, and -14.46% month-on-month, respectively. - 8.94% The 250,000-ton EVA project began trial production in February 2024. The 2024Q1 produced 253,000 tons, sold 13,200 tons, and had an average price of 9,141 yuan/ton.
Cost-side coal prices generally showed a downward trend. The average procurement price of 2024Q1 gasified feedstock coal, coking coal, and thermal coal was 600, 1156, and 452 yuan/ton, respectively, -19.00%, -20.80%, and -17.34%, respectively. According to investors' questions and answers, as of April 2024, the gross profit of phase II olefin at the company's Ningdong base was about 3,500 yuan/ton, and the gross profit of phase III olefin was about 3,550 yuan/ton.
The 2024Q1 coking sector was heavily dragged down. Downstream demand for coke was relatively slow. Product prices were relatively stable in January, and coke prices fell rapidly after the Spring Festival. Many coke factories were already in a state of loss, and the industry was at the bottom. The market is expected to be better in the second half of the year than in the first half of the year, and the effects of the policy momentum will be mainly evident after the second quarter. On the cost side, 2024Q1 has sales expenses of 20 million yuan (YoY+ 0.03 billion yuan, QoQ - 0.07 billion yuan), management expenses of 220 million yuan (YoY+ 41 million yuan, QoQ - 40 million yuan), R&D expenses of 97 million yuan (YoY+ 68 million yuan, QoQ + 0.18 billion yuan), and financial expenses of 160 million yuan (YoY+ 110 million yuan, QoQ + 0.06 billion yuan).
The first phase of the 3 million ton olefin project in Inner Mongolia is expected to be gradually put into operation in October '24, and I am firmly optimistic about the company's medium- to long-term growth. According to the company's announcement, the first phase of Inner Mongolia includes 2.6 million tons/year of coal-to-olefin and 400,000 tons/year of green hydrogen-coupled olefins. The project is the largest coal-to-olefin project with a single plant in the world. It is also the world's largest project to use green hydrogen to replace fossil energy to produce olefins. It has a good industry demonstration effect. It is an important step for the company to respond positively to the national “double carbon” strategy, and will help lead the coal chemical industry to achieve the “double carbon” target as soon as possible. Construction of the project officially began in March 2023, and it is expected that production will gradually begin in October 2024. Ningdong Phase III achieved 400,000 tons of polyethylene and 500,000 tons of polypropylene in September 2023 and began contributing to the performance. 250,000 tons of EVA were put into trial production in early February 2024, and are currently in the process of climbing. In the medium to long term, the company will have a production capacity of 7 million tons of coke and 7.7 million tons of coal-to-olefin, with remarkable growth in the medium to long term.
The launch of the controlling shareholders' holdings+employee shareholding plan shows confidence in the company's medium- to long-term development. On January 31, the company announced that the controlling shareholder Baofeng Group plans to increase its shareholding in the company within the next 6 months to an amount of 1-2 billion yuan, reflecting the long-term optimism of the controlling shareholders about the company's development. On March 14, the company disclosed the employee stock ownership plan. The unlocking conditions were based on 2024 revenue, and the revenue growth rate for 2025-2028 should not be less than 20%/30%/40%/50%, respectively. It shows confidence in the company's medium- to long-term development, and is also conducive to strengthening the cohesion of the company's core team.
Investment analysis opinion: Maintain the company's 2024-2026 net profit of 88.26, 150.43, and 17.977 billion yuan, respectively. The current market value corresponds to PE of 14, 8, and 7 times, respectively, to maintain the “buy” rating.
Risk warning: Oil prices fell sharply; product prices fluctuated greatly; project construction progress fell short of expectations; the company received a review inquiry letter on July 28, 2023, and announced a response in April 2024 to ask investors to be aware of the risks; the company received the Shanghai Stock Exchange's “Supervisory Work Letter on Ningxia Baofeng Energy Group Co., Ltd. relating to production safety issues” on April 18. Investors are requested to pay attention to the risks.