Key points of investment

Benefiting from the Yulong Island refining and chemical integration project, an important logistics company under Nanshan Group 1) The company's main business includes LNG trade, road transportation, and port business; the port business is positioned to provide supporting services for Yulong Petrochemical Industrial Park.

2) Dongnan Mountain Group, the largest shareholder of the company, is also a major shareholder of Yulong Petrochemical; Nanshan Group has extensive business, with total assets of nearly 180 billion yuan in 2023. It has 3 A-share listed companies, and Hengtong Co., Ltd. is one of them.

3) The Yulong Island Refining and Chemical Integration Project (Yulong Petrochemical Project for short) invested and built by Yulong Petrochemical is a world-class petrochemical No. 1 project built by Shandong Province, with a planned total production capacity of 40 million tons/year; the Yulong Petrochemical Industrial Park, which was established to support the refining and chemical project, is planned to have a total investment of 387.6 billion yuan by 2035. The industrial park relies on Longkou Port's 0.1 million-ton waterway to transport the raw materials needed for the project, and there is a need to develop the port's warehousing and logistics industry.

The Yulong Petrochemical project is about to be put into operation, and the port business is gradually being realized

Anchoring the goal of “full commissioning by the end of 2024”, the company will benefit from three stages: 1) short-term: during the construction phase of the Yulong Petrochemical project, where the company provides port leasing and port cargo handling services for related large equipment; 2) Mid-term: After Yulong Petrochemical is put into operation, the company provides services such as warehousing leasing, oil goods, and handling of containers and dry bulk goods; 3) Long-term: Yulong Petrochemical's first and second phases of operation will drive the development of the industrial chain, and the joint benefits of the company and port road transport business.

Hengtong Co., Ltd. is an important part of the “port+highway” intermodal transportation of the large Dongnanshan Group 1) In 2019, Nanshan Group, Wanhua Industrial, Shandong Development Investment Holding Group (Shantou Group for short) jointly established Shandong Yulong Petrochemical Co., Ltd. (Houshan Investment Group withdrew, Shanneng Group took a share) to invest in the implementation of the Yulong Island refining and chemical integration project.

2) In 2020, Nanshan Group began to acquire Hengtong Co., Ltd. As of March 31, 2024, Nanshan Group invested 3.3 billion yuan and held 40% of Hengtong's shares (average holding price of about 11 yuan), making it the largest shareholder. In the same year, Nanshan Group established a professional port operation company for supporting Yulong Petrochemical Industrial Park by Yulong Port Services.

3) In 2021, Hengtong acquired all shares of Yulong Port from Nanshan Group, thus entering the port business; with the commissioning of Yulong Petrochemical Industrial Park, Hengtong's performance is expected to enter the fast track as a logistics company with “port+highway” intermodal transport service capabilities within the park.

Profit forecasting and valuation

The company's traditional business operates steadily, and the port business gradually expands as the Yulong petrochemical project progresses. The company's net profit for 2024-2026 is expected to be 0.17, 0.28, and 0.43 billion yuan, respectively, up 43%, 63%, and 58% year-on-year, with a compound growth rate of 55% in 2023-2026. The corresponding PE is 35, 21, and 14 times; the corresponding PB is 1.5, 1.4, and 1.3 times, respectively. Covered for the first time, a “gain” rating was given.

Risk warning

The risk that the Yulong Petrochemical project falls short of expectations; the risk of LNG price fluctuations; the risk of major shareholders reducing their holdings.