The company's recent situation

In late May, the company and other leading enterprises jointly limited production and insured prices to guarantee the industry's reasonable profit level; in late June, leading companies made additional production cuts, and the efficiency of polyester filament per ton improved significantly.

reviews

The industry collaborated to fix the price difference, and the profit of polyester filament increased significantly in June. Since late May, leaders in the polyester filament industry have adopted operations such as joint price increases and load reduction to guarantee the industry's profit level. As of July 12, the industry's polyester filament POY/FDY/DTY inventory was 28.4/23.9/26.9 days, respectively, and had been reduced to a reasonable level; the POY/FDY/DTY price difference reached 1,286/1,786/2,686 yuan/ton respectively, up 451/306/306 yuan/ton from before the price increase. We expect the company to maintain a certain level of profit during the 2Q24 off-season, and the profit performance will be good after the implementation of the new pricing model in June. The industry's new pricing model has clearly improved price spreads, and leading companies have all benefited. We believe that the leaders are motivated to continue this pricing model.

The 3Q24 filament boom is expected to continue to improve. The third quarter is the traditional peak demand season. After downstream clothing orders begin, filament production, sales and shipments are expected to be released. As leaders continue to collaborate, we think the filament boom is expected to continue to improve.

The implementation of share repurchases shows the company's confidence in long-term development. On January 31, the company announced a plan to repurchase shares through centralized bidding transactions. It plans to use 0.1-0.15 billion yuan of its own capital to repurchase. As of June 30, the company has repurchased 2.6018 million shares, accounting for 0.17% of the company's total share capital, and the total payment amount is about 0.035 billion yuan. The repurchase is intended to be used for employee stock ownership plans or equity incentives, demonstrating the company's confidence in long-term development.

Profit forecasting and valuation

Due to increased industry synergy and improved competitive landscape, we raised 2024/2025 net profit by 12.8%/16.3% to 1.856 billion yuan/2.592 billion yuan. The current stock price corresponds to 12.2 times/8.8 times the 2024/2025 price-earnings ratio. Maintaining an outperforming industry rating, the target price was raised by 10.4% to 17.0 yuan, corresponding to 14.0 times/10.0 times the 2024/2025 price-earnings ratio, with 14.0% upside compared to the current stock price.

risks

The recovery of the long-silk economy fell short of expectations; industry leaders continued to expand production on a large scale; and oil prices fell sharply.