Report summary:
Deeply involved in the main polyester filament business, and the industrial chain layout has been gradually improved. The company was founded in 2000 and has been deeply involved in the filament business for a long time, mainly producing various products including POY, FDY, DTY, short fiber, PTA, etc. After 20 years of development and accumulation, the company has formed a “PTA - polyester - spinning - elastic” industrial chain integration and large-scale business pattern. By the end of 2023, the company had a polyester filament production capacity of 7.4 million tons, polyester staple fiber production capacity of 1.2 million tons, and PTA production capacity of 5 million tons.
Polyester filament: The investment in new production capacity is slowing down, and the supply and demand pattern is expected to improve. Polyester is an important variety of synthetic fibers. The supply and demand pattern of polyester filament is expected to improve markedly in the next two years, mainly due to:
(1) Domestic demand has returned to steady growth, and overseas storage is nearing its end; (2) The peak of production expansion has passed, and production capacity growth will slow down in the next two years. As the supply and demand pattern improves, we believe that polyester filament is expected to enter a boom cycle, and product profits will continue to rise. Currently, the company has a production capacity of 7.4 million tons of polyester filament. It is expected to add 400,000 tons of polyester filament in 2024 and additional 650,000 tons of differentiated filament in 2025, which is expected to fully benefit from the recovery of the industry boom.
PTA: Self-sufficiency of raw materials continues to improve. PTA is a key raw material for polyester filaments. Due to the need to improve the self-sufficiency rate of raw materials, the company continues to plan 5.4 million tons based on the current PTA production capacity of 5 million tons, and continues to develop an integrated layout upward, providing a strong and stable supply of raw materials for the company's polyester production.
Polyester staple fiber: horizontal expansion of the industrial chain, steady improvement of product efficiency. Polyester staple fiber is the second largest variety of chemical fiber in China. The company entered polyester staple fiber in 2021 and currently has a production capacity of 1.2 million tons, ranking first in domestic production. As the business is consolidated, the benefits of staple fiber are expected to continue to increase in the future.
Refining and chemical projects: vertically integrate the industrial chain and lay out integrated refining and chemical projects in Northern Indonesia. For a long time, domestic PX supply has been insufficient, and the dependence on imports is high. In 2023, the company will join hands with Tongkun to jointly lay out an integrated refining and chemical project in Indonesia. The project will enhance the company's PX raw material supply, help build a cross-border industrial chain value chain supply chain, and achieve the integrated development of the two industrial chains of Xinfengming and Tongkun Co., Ltd.
Adjust the profit forecast and raise it to a “buy” rating. Xinfengming is a major polyester filament enterprise. With the reduction in new production capacity investment in the industry this year and next two years, and the supply and demand pattern optimization, the polyester filament boom is expected to recover, driving the company's performance growth. We expect the company's revenue in 2024-2026 to be 660.5, 708.3, and 75.54 billion yuan (previously 633.6 billion yuan, adding 75.54 billion yuan in 2026), net profit to mother of 18.9 billion yuan, 25.9 billion yuan, 2.95 billion yuan (previously 1.48 billion yuan, 2.36 billion yuan, an increase of 2.95 billion yuan in 2026), and the corresponding PE is 12X/9X/8X, which is raised to the “buy” rating.
Risk warning: downstream demand falls short of expectations, production capacity investment falls short of expectations, rising raw material costs, profit forecasts and valuation models fall short of expectations