Incident: The company's 10,000-ton carbon fiber project officially started. Specifically, the project was completed in two phases. The first phase of the project will build 2 new spinning lines and 2 carbonization lines, supporting a 10,000-ton polymerization production line using a two-step process, and supporting the construction of production equipment related to dissolution, recycling, water production, nitrogen generation, power generation, etc. After completion, it can achieve an annual production capacity of 4,800 tons of high-performance carbon fiber. The second phase of the project will build 2 new spinning lines and 2 carbonization lines, and a 30,000 ton polymerization line for the two-step process. After the completion of the second phase, it can achieve an annual production capacity of 8,000 tons of high-performance carbon fiber and 23,840 tons of polyacrylonitrile powder. The first phase of the project invested about 1.6 billion yuan, with a total investment of about 1.8 billion yuan; the overall construction of the project required an investment of about 2.9 billion yuan, with a total investment of about 3.5 billion yuan. The first phase of the project is expected to put into operation the first kiloton line in the first half of 2025, and the first phase of the project will be completed and put into production in the first half of 2026. Using advanced technology, it has many advantages. The company's carbon fiber project uses aqueous precipitation polymerization, DMSO dissolution, dry spray wet spinning, and two-step preparation processes, which can achieve industrial production of T800/T1000 carbon fiber. The technology is advanced and reliable, the equipment is stable, the production cost is low, the product meets market needs, and has strong competitiveness in international and domestic markets.

With carbon fiber as the core, we actively deploy new quality productivity. The company focuses on new productivity with carbon fiber as the core, and cooperates with the carbon fiber research team of Shandong University to jointly build a laboratory to develop high-quality, low-cost carbon fiber with independent intellectual property rights. At the same time, the company actively promotes research and development of downstream application products with carbon fiber as the core and polyolefin as the base material, covering four major industries, including aerospace and military, low-altitude flight, lightweight automobiles and rail transit, and new building materials. The 10,000-ton carbon fiber project is a key step for the company to achieve the transformation, upgrading and development of polymer composites with carbon fiber as the core from propane dehydrogenation to downstream. In the future, it will build a 10,000-ton carbon fiber and composites zero-carbon industrial park in Maoming based on propylene and nuclear power as the source.

Profit forecasting and investment ratings. Affected by demand, we expect Donghua Energy's net profit for 2024-2026 to be 281 million yuan, 511 million yuan, and 1,075 million yuan, respectively (the original forecast for 24-25 was 1,091 million yuan and 1,809 million yuan), EPS was 0.18, 0.32, and 0.67 yuan (the original forecast for 24-25 was 0.69 and 1.15 yuan), and BPS in 2024 was 6.94 yuan. Referring to the valuation level of comparable companies, they were given 1.9 times PB in 2023, corresponding to a target price of 13.19 yuan, corresponding to 73 times PE (original target price 10.08 yuan, 1.44 times 2023 PB, equivalent to 23 times 24 times PE; +31%), maintaining a “superior to market” rating.

Risk warning. Construction of the project fell short of expectations; product prices fluctuated greatly.