The company's net profit to mother for the first half of 2024 was 10 to 1.15 billion yuan, a significant increase over the previous year. Tongkun Co., Ltd. announced its 2024 semi-annual results forecast. Net profit to mother is expected to reach 10 to 1.15 billion yuan, or +849.4% to +991.8% year-on-year, with a significant increase. In addition, the company expects net profit of 6 to 0.75 billion yuan after deducting the portion of the return on investment in joint ventures and joint ventures, or +31.9% to +64.8% year over year. Among them, the company's net profit for the second quarter of 2024 was 4.2 to 0.57 billion yuan. The year-on-year increase in profits was mainly driven by a steady domestic growth policy, marginal improvement in downstream demand for polyester filament, supply-side optimization, and increased industrial concentration. Industry synergy is obvious, product sales volume and price differences have increased, and the industry has recovered as a whole.

Zhejiang Petrochemical's return on investment has gradually improved. The company holds 20% of Zhejiang Petrochemical's shares. Relying on the world's large-scale integrated refining and chemical plants, Zhejiang Petrochemical has a rich variety of chemical products and improved gross profit through technological improvements and increased production capacity. It is expected that subsequent projects under construction by Zhejiang Petrochemical will be put into operation one after another, and the product boom will gradually recover, which will bring higher investment returns to the company.

The price of polyester filament increased year-on-year in the second quarter of 2024, and the industry as a whole was recovering. According to Wind data, the mainstream prices in the POY/FDY/DTY market in the second quarter of 2024 were 7691/8184/9105 yuan/ton, respectively, +3%/+3% YoY, -0.1%/-2%/+1% month-on-month; price spread +2%/-7%/+3% YoY, -2%/-8%/+4%. With supply-side optimization and increased concentration of polyester filament, it is expected that the profit center of polyester filament will continue to rise in the future.

The supply and demand for polyester filament improved marginally, and profits are expected to continue to recover. On the supply side, according to Wind data, the average operating rate of polyester filament in the second quarter of 2024 was 88%; on the demand side, the overall operating rate of downstream chemical fiber weaving in Jiangsu and Zhejiang was 70%; on the inventory side, the average inventory of polyester filament increased year-on-month. Supply and demand and inventories both increased month-on-month, while the average domestic downstream inventory declined year-on-year. From January to May 2024, retail sales of clothing, footwear, needles and textiles in China were 337.8 billion yuan, +3% year-on-year, and downstream demand increased.

Overall, the overall operating rate of downstream chemical fiber weaving of polyester filaments increased in the second quarter of 2024. Although polyester filament stocks were accumulated year on year, downstream blanks fell year on year, retail sales of textiles increased, demand increased, and polyester filament boom is expected to rise.

Extend the industrial chain to the upstream, and costs are expected to continue to be optimized. According to Wind data, the average market price of the company's main raw materials PX/PTA/MEG increased year-on-year in the second quarter of 2024. With the integrated refining and chemical development of polyester polyester enterprises, the disadvantage of China's high dependence on PX imports is expected to be gradually solved. At the same time, raw materials PTA and MEG are in a period of rapid growth in production capacity, supply and demand tend to be relaxed, and company costs are expected to continue to be optimized.

Investment advice: Performance fluctuated greatly due to fluctuations in the price and price spread of the company's main product, polyester filament. The polyester filament boom in the second quarter of 2024 was still being repaired, and demand was not fully released; in addition, Zhejiang Petrochemical's investment income also fluctuated greatly. Although expectations are positive, it will take time to recover. We lowered the company's 2024-2026 net profit forecast to 2.47/3.34/4.21 billion yuan (the original value was 3.22/4.6/4.62 billion yuan), the corresponding EPS was 1.03/1.38/1.75 yuan, and the PE corresponding to the current stock price is 14.8/11.0/8.7X, maintaining the “better than the market” rating.