1H24 forecast profit turns year-on-year loss into profit
The company announced that the net profit of 1H24 to mother is 0.25 to 0.037 billion yuan, turning a year-on-year loss into a profit. In other words, net profit for 2Q24 was -0.59 to -0.047 billion yuan, a year-on-year loss of 9.88 to 1 billion yuan, and changed from profit to loss month-on-month.
The performance forecast is generally in line with our expectations. We judge that 2Q24 refining's profit was about 0.13 billion yuan, and chemical losses were about 0.17 billion yuan.
1H24 produces 1.67 million tons of gasoline, +4% YoY; diesel produces 1.39 million tons, -25% YoY; aviation kerosene produces 1.23 million tons, +51% YoY; and produces 0.22 million tons of ethylene, -38% YoY.
Key points of interest
Optimize the product structure and keep refining profits stable. We expect the refining sector to be the main source of profit. 1) The company optimized its product structure, and the profitable aviation kerosene production increased 51% year over year to 1.23 million tons, improving product structure and profit; 2) We expect the 2024 Middle East crude oil OSP (Saudi Arabia's official crude oil price for Asian buyers) to be lower than the full year level of last year, which is beneficial to the profits of China's main refineries; 3) However, looking at refining profits throughout the year, the overall profit from naphtha prices is relatively low.
Chemical production has declined markedly, and the loss control strategy has been effective. 1H24 ethylene production was 0.22 million tons, down 38% year on year, intermediate petrochemical production was -28% to 0.74 million tons, and resin and plastic production was -13% to 0.47 million tons year on year. Looking back, we judge that the company will continue to reduce the operating rate of some less profitable chemicals, cope with competition in the chemical industry, and reduce losses.
2Q24 aromatics maintenance affected profits, and prices of some olefin products improved month-on-month. 1H24 aromatic hydrocarbon profits remain high, and we expect an average gross profit of about 2,000 yuan/ton per ton of aromatic hydrocarbons. Looking ahead, we judge that the aromatic hydrocarbon boom is expected to remain high in 2024-2025. However, after the company has completed routine maintenance of 2Q24 PX, we expect 0.6 million tons/year PX production capacity to remain at full capacity in 2H24.
The new materials project will advance steadily over the next 1-2 years. The company expects 0.024 million tons/year of raw wire and 0.012 million tons/year of large wire bundle carbon fiber production capacity to be fully completed and put into operation in 2024-25. Shanghai's key engineering projects of 0.25 million tons/year thermoplastic elastomer and 300,000 tons/year ethylene acetate projects are also progressing steadily at the same time. We believe it is expected to contribute to incremental profits as new material projects continue to be put into operation.
Profit forecasting and valuation
Considering that the gross profit of chemical products fell short of expectations, we reduced net profit to mother by 34%/26% in 2024/25 to 0.25/0.78 billion yuan, respectively. Considering that the industry is at the bottom of valuation and the company's balance sheet is still healthy, we maintain the A/H target price of HK$3.1/1.2 unchanged, corresponding to 1.3/0.46x 2024 and 1.3/0.43x 2025 net market ratios and 14%/4% upward space, and maintain the “outperforming industry” rating of A/H shares. A/H shares are currently trading at 1.2/0.4x2024 net market ratio.
risks
International oil prices have fluctuated greatly, and carbon fiber projects have fallen short of expectations.