Baofeng Energy released its semi-annual report. In the first half of 2024, it achieved operating income of 16.897 billion yuan, an increase of 29.09% over the previous year, and achieved net profit of 3.305 billion yuan to mother, an increase of 46.44% over the previous year. Among them, 24Q2 achieved revenue of 8.67 billion yuan in a single quarter, a year-on-year increase of 36.39%, a month-on-month increase of 5.39%, and a net profit of 1.88 billion yuan to mother, an increase of 75.8% year-on-year and 32.57% month-on-month.
Key points of investment
The sharp rise in polyolefin volume and price, and the sharp increase in profitability was the main reason why the company achieved a sharp increase in revenue and profit in the first half of the year
The first half of 2024 benefited from the commissioning of the Ningdong Phase III coal-to-olefin project in 2023. The company's main product, polyolefin production, was 1.2227 million tons, up 87% year on year. At the same time, the price of coal as the main raw material fell in the first half of the year. The average market price of 5,500 kcal thermal coal in the first half of the year was 658 yuan/ton, -1.7% year-on-year, and polyolefin prices rose due to rising crude oil prices. The average price of polyethylene products was 8417 yuan/ton in the first half of 2024. Compared with the same period, +2.6%, the price spread of the company's main product, polyolefin, widened further, and profitability increased dramatically.
The first phase of the Inner Mongolia project is about to be put into operation. It will support the company's future performance growth, and there is strong certainty about medium- to long-term growth
Construction of the first phase of the Inner Mongolia project has begun, and the company can expect future growth: in 2023, the company's Ningdong Phase III coal-to-olefin and C2-C5 and mixed hydrocarbon value-added utilization project was completed and put into operation. The project was the world's first olefin project using the third-generation 1 million tons/year of the Dalian Chemical Institute of the Chinese Academy of Sciences, adding 1.5 million tons/year of methanol production capacity, 1 million tons/year, and adding 0.9 million tons/year of polyethylene and polypropylene production capacity. The project completed the first boiler ignition at the end of June 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 2024. After the project is put into operation, it will be an important support for the company's medium- to long-term performance growth.
Maintain a leading technological advantage, accelerate new technology layout and reserve companies to accelerate and strengthen core technology R&D and innovation, and actively invest in R&D resources. In the first half of the year, the company invested 0.74 billion yuan in R&D, of which 0.342 billion yuan was formed, including 0.398 billion yuan in R&D expenses, a significant increase over the previous year. The research direction focused on maintaining leading coal-to-olefin technology, laying out the development of new photovoltaic-grade products, and breaking through solutions for new chemical raw materials. According to downstream demand, the company recently completed the development of 4 new coke varieties and technical reserves for 9 new coke formulations, and the market feedback was good. The company's Phase II olefin project has the capacity to produce high-end polyethylene bimodal products and metallocene polyethylene products, and the Phase III project has the capacity to produce 0.25 million tons/year EVA for high-end products.
Profit forecasting
As a leading domestic coal-to-olefin enterprise, the company has benefited from the increase in profitability brought about by the widening price spread of oil and coal and the increase in performance brought about by the commissioning of new projects, and has a certain growth potential. EPS is expected to be 1.14, 1.84, and 2.03 yuan respectively in 2024-2026, and the current stock price is 13.4, 8.3, and 7.5 times PE, respectively, giving it a “buy” investment rating.
Risk warning
Downward economic risk; risk of large fluctuations in product prices; risk of project construction falling short of expectations; risk of limited commencement of construction due to environmental protection policies; risk of downstream demand falling short of expectations.