Description of the event
Recently, according to Baichuan Yingfu, polyester filament has been rising frequently. As of 2024/06/30, the average daily price in the DTY market was 9,400 yuan/ton, and the average monthly price was 9,272 yuan/ton, up 2.76% from the previous month.
The polyester filament boom is recovering, and Dongfang Shenghong is expected to benefit
Recently, prices of some varieties of filament have increased one after another, driving downstream on-demand procurement. Beginning in May, the shipment situation of small factories improved, and production and sales of large manufacturers also improved compared to the previous period. Coupled with recent raw material cost support, prices have been raised one after another. We believe that the new price model is expected to continue. As the peak season at home and abroad approaches in the third quarter, supply and demand continue to improve, and the bargaining power of filament companies increases, and the bargaining power of filament companies increases easily, and it is difficult to fall.
The growth rate of new production capacity has slowed sharply, and there has been a marked improvement on the supply side. In recent years, domestic polyester filament has always been in a high production capacity stage. The peak production period for the polyester filament industry, which began in 2024, is over. It is estimated that an additional production capacity of about 1.2 million tons will be added in 2024. The growth rate has slowed sharply compared to the past few years, and the supply pattern has improved markedly. As the market share of leading companies further increases, it is predicted that domestic polyester filament production will expand in an orderly manner in the future.
Overseas demand is expected to be replenished, and domestic demand is expected to improve. US clothing retail inventory sales continued to decline month-on-month, and 2024 is expected to usher in a stock replenishment cycle. In terms of domestic demand, as the largest share of fabrics, demand for clothing and home textiles is strong and is expected to grow steadily.
Dongfang Shenghong is a leading differentiated DTY company and is expected to fully benefit from the upward boom. As of 2023, the company has a polyester filament production capacity of 3.55 million tons/year, and its products are mainly differentiated DTY. Among them, recycled polyester fiber has a production capacity of 0.55 million tons/year, ranking first in the world. The company is rooted in a misplaced competitive strategy, focusing on the development and production of microfibers and differentiated functional fibers. It is known as a “global differentiated chemical fiber expert” and is the industry leader in profitability. As of 2024/06/28, the average price in the DTY market was 9,400 yuan/ton. The average monthly price rose 2.71% month-on-month, and the price increased by 400 yuan/ton from 5/14 low of 9,000 yuan/ton. The company is expected to fully benefit from this polyester filament price increase.
The high-end layout enriches the product matrix, and the large-scale chain expands supply capacity. In 2023, the company's “1+N” new energy and new materials strategy was fully implemented. After the integrated refining and chemical integration was fully put into operation, the company further planned a subsequent production expansion plan for EVA, acrylonitrile, and degradable materials based on the integrated refining and chemical raw material platform and pioneering the layout of new materials. The total amount of new materials will triple in the future, continuing to drive the company's profit growth. At the same time, the company plans to invest in the construction of high-end new material projects such as 1 million tons of acetic acid, 0.2 million tons of α-olefin, 0.3 million tons/year of butyl alcohol, 0.3 million tons/year of acrylic acid and ester equipment, and 0.24 million tons/year of bisphenol A plant, with the goal of achieving localized replacement and strengthening the refining and chemical chain. Among them, the company will create a unique industrial chain layout with POE+EVA photovoltaic particles running parallel at the same time.
Investment advice
In 2023, the company's refining and chemical sector's profits were affected due to inventory impairment. In 2024, the company's refining and chemical sector is expected to go into battle lightly and profits will recover. The company's polyester sector is benefiting from the increasing prosperity of the polyester industry, and marginal improvements are expected. Due to higher than expected crude oil price fluctuations and the company's impairment preparations, we revised our 2024-2025 profit forecast. We expect the company's net profit to be 3.047 billion yuan, 4.326 billion yuan, and 5.906 billion yuan respectively (the original value in 2024-2025 was 6.357 billion yuan and 10.435 billion yuan), and EPS was 0.46 yuan, 0.65 yuan and 0.89 billion yuan, respectively, corresponding to the current stock price PE was 17.29/12.18/8.92, respectively, maintaining a “buy” rating.
Risk warning
Crude oil and coal prices fluctuate greatly;
The construction of the project fell short of expectations;
force majeure;
Macroeconomic downturn.