Huafeng Chemical released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 13.744 billion yuan, an increase of 8.89% over the previous year, and net profit after deducting non-return to mother of 1.455 billion yuan, an increase of 11.28% over the previous year.
The increase in the company's net profit deducted from mother in the first half of 2024 was mainly due to the official completion of some new production capacity and a reduction in financial expenses. In the first half of 2024, the company's spandex and adipic acid sectors released production capacity compared to the first half of 2023. Production and sales of major products all increased compared to the first half of 2023; the company's financial expenses decreased by 65.59% year-on-year to -0.122 billion yuan, due to increased interest income and exchange earnings. 1) By product, the operating income of chemical fibers, new chemical materials, and basic chemical products changed by -0.11%, -0.11%, and 42.38% year-on-year to 0.465, 0.304, and 0.526 billion yuan, respectively. The gross margins of each sector decreased by 0.71, 3.52, and 1.87 pcts from the first half of 2023 to 14.97%, 21.78%, and 15.45%, respectively. 2) In terms of profitability, the company's gross sales margin and net sales margin were 16.52% and 11.06% respectively in the first half of 2024, with year-on-year changes of -0.96 and 0.29 pcts. 3) The three-year rate for the first half of 2024 was 4.69%, a year-on-year decrease of 0.99 pcts. Among them, sales, management, and finance expenses changed -0.01, -0.33, and -0.30 pcts year-on-year to 0.70%, 1.40%, and -0.89%. The company's R&D expenses accounted for 3.49% of revenue in the first half of 2024, a decrease of 0.36 pcts year on year.
The company continues to promote the construction of key projects. As of the first half of 2024, the company's major projects under construction include:
PTMeg spandex industry chain deepening project with an annual output of 0.24 million tons, differentiated spandex project with an annual output of 0.3 million tons, 1.15 million tons/year adipic acid expansion project (phase 6), integrated natural gas project with an annual output of 1.1 million tons (phase 1), and Huafeng Chemical R&D headquarters project. As of the first half of 2024, the above projects had invested 0.015 billion yuan, 0.132 billion yuan, 0.302 billion yuan, respectively. 0.031 billion yuan and 0.715 billion yuan, the investment ratio was 0.51%, 39.83%, 92.06%, 0.61%, and 23.84% of the budget, respectively.
The company has advantages in technology, industrial chain integration, and cost in terms of production. 1) The company currently has 283 active patents, and nearly 100 invention patents are pending. 2) The company has formed an integrated production system from raw materials and intermediates to finished products, and has the advantage of large-scale industrial chain integration.
3) The company relies on modern data analysis systems such as ERP systems and production line cost accounting models to maintain the advanced level of production cost control, energy saving and consumption reduction in the same global industry.
Profit forecasts and reference ratings. We expect the company's EPS in 2024-2026 to be 0.68, 0.78, and 0.81 yuan respectively. Referring to the valuation of comparable companies in the same industry, we believe that a reasonable valuation range is 13-15 times PE in 2024, and the corresponding reasonable value range is 8.84-10.20 yuan, which remains superior to the market rating.
Risk warning. The pace of commissioning of production capacity under construction fell short of expectations; raw material prices fluctuated.