Introduction to this report:

The company's 2024H1 performance achieved high growth, in line with market expectations. With the optimization of the pattern and the recovery in demand in the context of price increases from superimposed leaders, filament profits are expected to recover further.

Key points of investment:

Investment advice: The optimization of the long silk pattern is driving up the price spread, but the company's shareholder Zhejiang Petrochemical has dragged down investment income. We lowered the company's 2024-2026 EPS to 1.18/1.67/2.31 yuan (originally 1.4/1.85/2.53 yuan). Refer to the comparable company's 2024 PE 15 times, and the target price was reduced by 17.70 yuan (originally 20.30 yuan) to maintain the “increase” rating. 2024H1's high performance growth is in line with market expectations: The company released a performance forecast for the first half of 2024. The company expects to achieve net profit of 10 to 1.15 billion yuan in the first half of 2024, compared with YoY +849%-992%, and net profit after deduction of 8.5 to 1 billion yuan, or +2186% to 2555% compared to the same period last year.

According to estimates, 2024Q2 net profit was 4.2 to 0.57 billion yuan, QoQ -27.6% to -1.7%, net profit after deduction was 3.13-0.463 billion yuan, and QoQ -41.7% to -13.8%. 2024H1's profit after deducting investment income in joint ventures and joint ventures was 6 to 0.75 billion yuan. After estimation, the main profit after deducting investment income in 2024Q2 was 2.7 to 0.42 billion yuan, which was -17.6% to +28.0% compared to the previous month. The company's performance is in line with market expectations, and we expect filament to contribute the main profit in the second quarter.

The pattern of the filament industry has been further optimized, and the willingness of the leaders to raise prices has strongly promoted the restoration of profit expectations:

Since 2024, the pattern of the filament industry has improved. The annual increase was about 0.9 million tons/year. The production capacity growth rate was 2%, and the growth rate of new production capacity slowed sharply. After experiencing demand drag over the past few years, small production capacity was shut down and cleared up one after another under the impetus of policies such as the “Energy Saving and Carbon Reduction Technology Transformation Action Plan (2022 - 2024)”. The industry's CR6 exceeds 80%, and the leaders' ability to bargain downstream has increased. Since the second quarter of 2024, filament leaders have promoted the “one price” model and increased their willingness to raise prices. According to wind data, the average price of POY/FDY/DTY in the 2024Q2 quarter was 6795/7236/8048 yuan tons, respectively, +2.58%/+0.70%/+2.71%, and the price differences were 988/1429/2241 yuan/ton, respectively, +0.87%/-7.29%/+2.27% YoY, and the price differences for each category improved month by month in the second quarter. It is expected that in the context of the strong will of leading companies to “raise prices”, as the peak season in the third quarter approaches, compounded by overseas stock replenishment expectations, long silk is expected to have a lot of room for profit recovery.

Refining and chemicals are picking up, and investment income is expected to pick up: the company holds 20% of Zhejiang Petrochemical's shares. According to the announcement, the company's investment income in joint ventures and joint ventures in the first half of 2024H1 was 0.4 billion yuan, which turned a loss into a profit compared to 2023H1's -0.35 billion yuan. As Zhejiang Petrochemical optimizes plant performance and enriches product structures, investment returns are expected to pick up against the backdrop of a recovery in chemical demand.

Risk warning: the risk that downstream demand falls short of expectations, and fluctuations in crude oil prices will cause costs to rise.