Key points of investment
Incident: On May 24, 2024, the company announced that it will adjust the equity structure, investment amount and project scale of Taikun Petrochemical Indonesia's North Refining and Chemical integration project.
Shareholding structure: The company's shareholding ratio has increased. 1) Before the adjustment: The implementing entity of the project was Taikun Petrochemical. Before the adjustment, the penetrating shareholding ratio of Tongkun Co., Ltd. was 45.9%, and the shareholding ratio of Xinfengming and Shanghai Qingyi penetrating was 44.1%/10% respectively. 2) After the adjustment: The penetrating shareholding ratio of Tongkun shares increased to 80%, while the penetrating shareholding ratio of Xinfengming and Shanghai Qingyi decreased to 15%/5% respectively.
Project plan: The overall scale is reduced, and the share of olefins is increased. 1) Before adjustment: The refining scale was 16 million tons, and 4.3 million tons of refined oil products, 5.2 million tons of PX, and 800,000 tons of ethylene were planned, with PX/ethylene accounting for 32.5%/5%, respectively. 2) After adjustment: The refining scale was reduced to 10 million tons, and 4.18 million tons of refined oil, 2 million tons of PX, 1.2 million tons of ethylene and other products are planned, with PX/ethylene accounting for 20%/12%, respectively.
Target markets: Increased market share in Indonesia and ASEAN. 1) Before the adjustment: 4.67 million tons of products such as refined oil and sulfur were digested by the Indonesian market; 8.47 million tons of finished products such as PX, benzene, and propane were digested by the Chinese market; 1.18 million tons of products such as FDPE, EVA, and polypropylene were jointly digested by the Chinese, Indonesian and ASEAN markets. Among them, the digestion ratio of the Indonesian market was 33%, and the joint digestion ratio of China, India, and ASEAN was 8%. 2) After adjustment: 5.58 million tons of finished products such as refined oil, sulfur, and benzene were digested by the Indonesian market, 2 million tons of PX were returned to the Chinese market for digestion, and 1.7 million tons of finished products such as FDPE, HDPE, LLDPE, and polypropylene were jointly digested by the Indonesian and ASEAN markets. Among them, the Indonesian market digestion ratio was 60%, and the joint digestion ratio of Indonesia and ASEAN was 18%.
Investment amount: Total investment has been reduced, and capital expenditure has increased slightly. 1) Before the adjustment: The total investment of the original Taikun petrochemical project was 8.62 billion US dollars, including syndicated loan financing of 6 billion US dollars and self-financing of 2.6 billion US dollars. Based on the shareholding ratio, the share of capital required by the company was 1.19 billion US dollars. 2) Adjusted: The total investment of the project fell to US$5.95 billion, including US$4.14 billion in bank loans and US$1.79 billion in self-financing. In terms of shareholding ratio, the share of capital to be borne by the company was US$1.43 billion. Based on a four-year construction period, the average annual investment scale is about US$360 million (the average operating cash flow of the company in the past three years was 2.3 billion yuan), and the overall pace of capital expenditure is manageable.
Refining and chemical companies are on the rise, and plan optimization will help the project move forward smoothly. After this adjustment, total project investment and total refining scale declined, but the company's shareholding ratio increased, and the corresponding equity refining scale increased from 7.22 million tons to 8 million tons, and the company's control over the Indonesian project was further strengthened.
Furthermore, after the adjustment, the company's chemical structure is more balanced, and its downstream products are closer to the Indonesian and ASEAN markets, which is expected to further strengthen the location advantage and enhance the competitiveness of the project.
Profit forecast and investment rating: We maintain the company's net profit forecast for 2024-2026 at 32/44/5.1 billion yuan. Based on the closing price on May 24, corresponding to PE 11.7/8.5/7.3 times, respectively, we maintain a “buy” rating.
Risk warning: demand recovery falls short of expectations, fluctuating raw material prices, delays in project approval or implementation, and intensification of competition in the refining and chemical market