Net profit to mother increased by 1087% year-on-year in 1Q24. In the first quarter of 2024, the company achieved operating income of 31,656 billion yuan, +11.54% year-on-year; net profit to mother was 414 million yuan, +1087.19% year-on-year and +80.52% month-on-month, the best level in a single quarter since the second half of 2022.

Improvement of gross margin and restoration of gross profit. In the first quarter of 2024, the company's gross profit margin was 4.95%, up 0.71 percentage points year on year and 1.56 percentage points month on month; it achieved gross profit of 1,567 million yuan, an increase of 362 million yuan over the previous year, and 392 million yuan over the previous year.

Balanced layout of the entire industry chain. As of the disclosure date of the 2023 annual report, the company has a crude oil processing capacity of 8 million tons/year; PIA production capacity of 21.5 million tons/year; PIA production capacity of 300,000 tons/year; caprolactam (CPL) production capacity of 400,000 tons/year; and 111.15 million tons/year of polyester fiber and 3.6 million tons/year of bottle flakes (including rPET).

Key projects are progressing steadily to strengthen the integrated industrial chain. The company is steadily advancing projects such as 1.2 million tons/year “caprolactame-polyamide” integration and supporting projects, and Brunei Refining and Chemical Phase II. In addition, the joint venture company Hainan Yisheng's “2.5 million tons/year PTA+1.8 million tons/year functional materials project” is progressing steadily, and the 2.5 million ton PTA plant will enter trial production stage in 2023; in the 1.8 million ton functional materials project, the first 600,000 ton unit has already been tested for production, and the remaining two sets of 1.2 million tons of plants with a total annual output of 1.2 million tons will be tested in 2024.

Profit forecasting and investment ratings. We expect EPS in 2024-2026 to be 0.27, 0.38, 0.46 yuan, and 2024 BPS 6.95 yuan, respectively. Referring to comparable company valuation levels, we will give 2024 PB 1.1-1.3 times, corresponding to a reasonable value range of 7.65-9.04 yuan (corresponding to 28-33 times PE in 2024), maintaining the “superior to market” rating.

Risk warning: Crude oil prices fluctuate at a high level; product prices fluctuate greatly; the progress of projects under construction falls short of expectations.