Incidents:
The State Council issued the “2024-2025 Energy Conservation and Carbon Reduction Action Plan” to refine energy saving targets in key areas and industries. For the petrochemical industry, the “Plan” proposes: 1. Strict petrochemical industry policy requirements. 2.
Accelerate the energy-saving and carbon-reduction transformation of the petrochemical industry. From 2024 to 2025, the petrochemical industry's energy-saving and carbon-reduction transformation will save about 40 million tons of standard coal and reduce carbon dioxide emissions by about 110 million tons. 3. Promote the reengineering of petrochemical processes. Vigorously promote the substitution of renewable energy, encourage research and development and application of renewable energy hydrogen production technology, support the construction of green hydrogen refining and chemical projects, and gradually reduce the amount of hydrogen used by coal in the industry.
Conclusions and comments:
The reintroduction of energy saving and carbon reduction targets is expected to accelerate the elimination of enterprises that do not meet energy efficiency standards in high-energy industries. The company is a leading domestic coal-to-olefin enterprise. It has obvious cost advantages, leading energy efficiency benchmarks, and vigorously expanding production at the end of the cycle, and will fully enjoy the dividends of industrial pattern optimization. In addition, the company laid out the green hydrogen industry ahead of schedule and produced hydrogen through photovoltaic power generation, which was very effective in saving energy and reducing emissions. I am optimistic about the company's long-term growth and give it a “buy” rating.
Leading energy efficiency in the country, fully benefiting from the optimization of the industrial pattern: the State Council issued a new “2024-2025 Action Plan for Energy Conservation and Carbon Reduction”, which is expected to accelerate the elimination of backward production capacity in high-energy industries. According to the plan, by the end of 2025, the refining, ethylene, synthetic ammonia, and calcium carbide industries will account for more than 30% of production capacity above the energy efficiency benchmark level, and production capacity below the energy efficiency benchmark level will complete technological transformation or be phased out. As a leading domestic coal-to-olefin enterprise, the company's energy consumption has always been at the leading level in the industry and continues to decline. The comprehensive energy consumption of the company's main energy consumption units decreased by 2.55% in 2023. The China Petroleum and Chemical Industry Federation released the “2022 Energy Efficiency Leader Benchmark Enterprise for Key Products in the Petroleum and Chemical Industry” in August 2023. The company ranked first in China's coal-to-olefin industry; ranked second in China's coal-to-olefin industry among “water efficiency leaders and benchmark enterprises”. The company will fully benefit from the optimization of the pattern brought about by the removal of backward production capacity in the industry.
Rapid release of production capacity and sufficient growth momentum: The company is rich in early planning projects, and has been in the production capacity release period for the past two years. In September 2023, Ningdong Phase III's 900,000-ton polyolefin plant was put into operation, and production capacity is being released; Q1's 250,000 ton EVA project was put into operation in 2024; within 2024, the company's Inner Mongolia Phase I coal-to-olefin project with 400,000 tons/year is expected to be put into operation, which will continue to drive the company's olefin production capacity to double from 2.1 million tons to 5.1 million tons. The company's newly built production capacity is expected to further reduce the company's energy efficiency level. Furthermore, the company is located in Ningdong, Ningxia and Ordos, Inner Mongolia, and has advantages in terms of energy prices and security. The company currently has a coal mine equity production capacity of 1.02 million tons, and has built a “coal-coke-olefin” integrated industrial chain, showing significant growth momentum.
Laying out green hydrogen to help reduce green emissions: The company's first phase of the Inner Mongolia Phase I coal-to-olefin project with 400,000 tons/year green hydrogen coupling olefin is the largest coal-to-olefin project in a single plant in the world. It is also the largest project in the world to use green hydrogen to replace fossil energy to produce olefins. By generating “green hydrogen and green oxygen” through “complementary wind and light”, “green hydrogen and green oxygen” are produced directly to the chemical system, the scientific path of “carbon neutrality” of replacing fossil energy with new energy sources has been realized. At present, the construction process for the first phase of the Inner Mongolia project is over half, with a total investment of 47.811 billion yuan. It is expected to be put into operation within 2024. The company uses green hydrogen to green oxide olefins to save energy and reduce emissions at the source, fully demonstrating its determination and forward-looking nature in the direction of energy saving and emission reduction.
Profit forecast: We expect the company to achieve net profit of 79/133/148 billion yuan in 2024/2025/2026, yoy +39%/+12%, equivalent to EPS of 1.07/1.81/2.02 yuan. The PE corresponding to the current A share price is 15/9/8 times. The current valuation is reasonable, giving it a “buy” rating.
Risk warning: 1. The product price falls short of expectations; 2. The commissioning of new construction projects falls short of expectations, etc.