Tongkun Co., Ltd. released its 2023 annual report, achieving operating income of 82.64 billion yuan, an increase of 33.3% over the previous year; net profit to mother of 797 million yuan, an increase of 539.1% over the previous year. 2023Q4 achieved operating income of 20.898 billion yuan, +41.16% year over year, and -15.88% month on month; realized net profit of -107 million yuan.
Tongkun Co., Ltd. released its report for the first quarter of 2024. In 2024 Q1, the company achieved operating income of 21.111 billion yuan, +32.66% year-on-year, and +1.02% month-on-month; realized net profit to mother was 580 million yuan, turning losses into profits year-on-year and month-on-month.
Key points of investment
The recovery in the industry combined with the company's production capacity increase, and the performance improved in 2023
Benefiting from the recovery of the social scene, domestic market demand in the textile industry was resilient in 2023, and retail sales of domestic textile and garment products recovered markedly. In 2023, retail sales of clothing, shoes, hats, and knitwear products per unit above the national limit increased 12.9% year-on-year, and the growth rate rebounded 19.4 percentage points from 2022. According to statistics from the China Chemical Fiber Association, polyester production in 2023 was 57.02 million tons, an increase of 8.7% over the previous year. The overall inventory of chemical fiber is still at a normal level in the face of high production and high start of construction in the industry. The average annual inventory of polyester POY is about 15 days, down 11 days from 2022. The company's profit margin for polyester filament recovered year-on-year in 2023, while the bottom bucked the trend, and production and sales increased markedly. By product sector, the company's POY/FDY/DTY sales volume in 2023 was 784/147/99 million tons, respectively, +35.4%/+38.5%/+27.3%; revenue was 531.6/111.8/8.24 billion yuan, respectively, +30.9%/+36.7%/+21.5%, respectively; the average price without tax was 6777.7/7608.5/8298.4 yuan/ton, respectively, -3.31%/-1.3%/-4.61%, respectively; gross margin was 5.22%/ 9.81%/2.53%, +2.35pcts/+2.38pcts/+2.06pcts year over year. In 2023, the company's gross sales margin was 5.06%, +1.83 pcts; the net sales margin was 0.99%, +0.77pcts year on year, and the profitability of the main polyester filament business rebounded significantly.
2024Q1's performance turned a loss into a profit, and the longsilk boom continues to rise. According to the company's operating data, 2024Q1's POY/FDY/DTY sales were 193.5/41.5/235,000 tons, respectively, +37.4%/+36.9%/+12.7% year-on-year; revenue was 132/32/20 billion yuan, respectively, compared to the same period last year
+40.7%/+41.8%/+14.8%; average prices without tax are
6819.4/7711.2/8406.3 yuan/ton, +2.41%/+3.59%/+1.91% YoY. 2024Q1's gross sales margin was 6.71%, +1.92 pcts year on month, +4.73 pcts month on month; net sales margin was 2.77%, +5.74 pcts year on year, +3.26 pcts month on month. 2024Q1 confirmed investment income of 250 million yuan for participating company Zhejiang Petrochemical, which reversed losses year on year and +26.8% month on month. According to Baichuan Yingfu, the country is expected to add 1.2 million tons of polyester filament production capacity in 2024. Considering the relocation of 750,000 tons of production capacity in Hangzhou, without considering the withdrawal of other backward production capacity in the industry, the net increase in polyester filament production capacity in 2024 is only about 500,000 tons. The capacity growth rate has slowed sharply and is far below the growth rate of demand, and the company as an industry leader will fully benefit.
Market share continues to increase, further consolidating product and scale advantages. By the end of 2023, the company's PTA production capacity broke 10 million tons, the annual polymerization capacity reached 13 million tons, and the annual production capacity of polyester filament reached 13.5 million tons. The market share of filament products reached a record high (18% globally and 28% domestically), and continued to rank first in the world. From 2001 to 2023, the company ranked first in sales in China's polyester filament industry for 23 consecutive years, and has a large market voice. At the same time, the company's polyester filament products include six series of more than 1,000 varieties of POY, FDY, DTY, ITY, medium strength wire and composite wire, with complete specifications and are known as “Walmart among polyester filament companies”. On the one hand, the increase in the company's market share is a reflection of the company's economies of scale. On the other hand, as the company's market share and overall industry concentration increase, the future profit center of leading enterprises in the polyester filament industry will gradually move upward.
Profit forecasting
The company's revenue for 2024-2026 is 883, 943, and 102.1 billion yuan, respectively, and EPS is 1.25, 1.72, and 2.15 yuan, respectively. The current stock price corresponds to PE of 11, 8, and 6.4 times, respectively, maintaining a “buy” investment rating.
Risk warning
Downward economic risk; risk of large fluctuations in product prices; risk of project construction falling short of expectations; risk of limited commencement of construction due to environmental protection policies; risk of downstream demand falling short of expectations.