Key points of investment:
Company announcement: The company released the 2024 semi-annual performance report. In the first half of 2024, the company achieved operating income of 16.895 billion yuan (YoY +29.07%), net profit of 3.304 billion yuan (YoY +46.41%), net profit of 3.543 billion yuan (YoY +45.46%); of these, 2024Q2 achieved operating income of 8.668 billion yuan (YoY +36.36%, QoQ +5.36%), net return to mother Profit was 1.883 billion yuan (YoY +75.75%, QoQ +32.53%), net profit not attributable to mother was 2.061 billion yuan (YoY +78.32%, QoQ +39.06%). The results were in line with expectations.
Polyolefin price fix+declining coal costs led to a rapid widening of polyolefin price spreads, and Q2 performance increased significantly from month to month. According to Baichuan Yingfu data, the average prices of 2024H1's main products polyethylene, polypropylene, EVA, and coke were 8320, 7315, 12034, and 1,942 yuan/ton, respectively, +2.67%, -0.41%, -24.53%, and -14.23%, respectively, and +2.02%, +0.31%, -12.38%, and -6.08% month-on-month, respectively; of these, 2024Q2 polyethylene, polypropylene, EVA, and coke were 8465, 7421, 11597, and 1,822 yuan/ton, respectively. 5.97%, +4.61%, -22.25%, -9.41%, +3.55%, +2.94%, -11.71% month-on-month, respectively; the average prices of 2024H1's main raw materials thermal coal and coking coal were 733 and 1,821 yuan/ton, respectively, -21.14% and -7.98%, respectively, -3.59% and -2.31% month-on-month; of which 2024Q2 main raw materials were 714, 1,708 yuan/ton, respectively, -14.90% and -2.28%, respectively. -5.03% and -11.69%, respectively. The price repair of the main product, polyolefin, compounded the decline in the price of coal on the cost side, and the price spread of polyolefin widened rapidly. In addition, with the commissioning of the company's Ningdong Phase III olefin project, production and sales of olefin products have also increased dramatically.
The first phase of the 3 million-ton olefin project in Inner Mongolia is expected to be gradually put into operation in October '24, and I am firmly optimistic about the company's medium- to long-term growth. According to the company's announcement, the first phase of Inner Mongolia includes 2.6 million tons/year of coal-to-olefin and a supporting 0.4 million tons/year project to implant green hydrogen-coupled olefins. The project is the largest coal-to-olefin project with a single plant in the world. It is also the largest project in the world to produce olefins using green hydrogen instead of fossil energy. It has a good industry demonstration effect. It is an important step for the company to respond positively to the national “double carbon” strategy and help lead the coal chemical industry to achieve the “double carbon” goal as soon as possible. Construction of the project officially began in March 2023. According to the Petrochemical Federation, as of July 2024, all civil engineering and design work has been completed, the installation of the steel structure is nearing completion, all installations have fully entered the equipment and process piping installation sprint stage, and several installations have reached key milestones. The project completed the first boiler ignition at the end of June and the beginning of July this year. It is expected that the first series of polyolefin products will be produced in October, and the entire process will be completed by the end of 24. In the future, the company will have a production capacity of 7 million tons of coke and 7.7 million tons of coal-to-olefin, with remarkable medium- to long-term growth.
Investment analysis opinion: Taking into account the upward pace of the first phase of production in Inner Mongolia, the 24-year Olefin production and sales forecast was lowered to adjust the company's 2024-2026 net profit of 8.012, 15.011, and 17.986 billion yuan, respectively (previous values were 8.826, 15.043, and 17.977 billion yuan). The PE corresponding to the current market value is 14, 7, and 6 times, respectively, maintaining the “buy” rating.
Risk warning: Oil prices fell sharply; product prices fluctuated greatly; project construction progress fell short of expectations; the company received a review inquiry letter on July 28, 2023, and announced a response in April 3, 2024, requesting investors to be aware of the risks; the company received the Shanghai Stock Exchange's “Supervisory Work Letter on Ningxia Baofeng Energy Group Co., Ltd. relating to production safety issues” on April 18. Investors are invited to pay attention to the risks.