occurrences

On July 13, 2024, the company announced a preliminary increase in the 2024 semi-annual results. The company expects to achieve net profit from 1 billion yuan to 1.15 billion yuan in the 2024 semi-year, an increase of 849.40% to 991.81% over the previous year.

reviews

The polyester industry boom recovered, and the company's 2024H1 performance improved significantly year on year. According to the company's performance advance announcement, the company's net profit after deducting the investment income portion of joint ventures and joint ventures is expected to reach 0.6-0.75 billion yuan in the first half of 2024, up 31.86% to 64.82% year on year. Among them, 2024Q2's net profit after deducting the investment income portion of associated enterprises and joint ventures is expected to reach 0.27-0.42 billion yuan, with an average of +5.1% month-on-month. The company's main business improved sharply year-on-year in the first half of 2024, mainly benefiting from a significant marginal improvement in downstream demand in the polyester filament industry compared to the same period in 2023. The large-scale expansion cycle of supply-level industry leaders ended, industry concentration further increased, industry synergy was more obvious, product sales volume and price differences increased, and the industry as a whole was recovering. Among them, according to Wind, in June 2024, the POYPX/MEG price difference reached 1,400.21 yuan/ton, +16.27% month-on-month; the FDY-PX/MEG price difference reached 1767.47 yuan/ton, +4.96% month-on-month, and the profit of polyester filament improved significantly.

Supply and demand continue to be optimized, optimistic about the peak season for polyester filament

Recently, the supply and demand of polyester filament has continued to be optimized. On the supply side, according to Huarui information, the two major manufacturers in Tongxiang cut production further in late June. The planned production cuts reached 10% and 17-18%, respectively. While the contraction on the supply side relieved the pressure of storage during the off-season, it also laid a good foundation for the upward elasticity of the peak season. On the demand side, demand for domestic textile and garment terminals grew steadily. In May 2024, retail sales of clothing, shoes, hats, and knitwear products in China increased 4.4% year on year; on the overseas side, textile inventory continued to decline. According to Wind, as of May 2024, the inventory of US clothing and clothing fabric wholesalers reached 28.744 billion US dollars, -0.72% over the previous month. As inventory gradually falls to a low level, overseas is expected to usher in demand for stock replacement. In the context of improved supply and demand, the price spread of polyester filament improved further in the third quarter. As of July 12, the POY-PX/MEG price difference reached 1483.06 yuan/ton in July 2024, +5.92% month-on-month; the FDYPX/MEG price difference reached 1942.13 yuan/ton, +9.88% month-on-month. Tongkun Co., Ltd. currently has a polyester filament production capacity of 13.5 million tons/year, which will fully benefit from the upward trend in the industry.

Profit forecasting and valuation

We expect the company's 2024-2026 net profit to be 3.197/4.215/5.122 billion yuan, EPS 1.33/1.75/2.12 yuan, respectively, and the corresponding PE is 11.43/8.67/7.14 times the current price. Tongkun Co., Ltd. is a leading domestic polyester filament company. The cost advantage is remarkable. Entering 2024, the new production capacity of the industry will slow down, and the industry is expected to boom and maintain the company's “buy” rating.

Risk warning

Risk of fluctuating raw material prices, risk of product demand falling short of expectations, risk of increased industry competition