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Hengli Petrochemical released its 2024 semi-annual report on August 22, 2024. 2024H1 achieved operating income of 112.596 billion yuan, an increase of 2.87% over the previous year, and realized net profit to mother of 4.018 billion yuan, an increase of 31.77% over the previous year.

Among them, 2024Q2 achieved operating income of 54.184 billion yuan, a year-on-year increase of 1.65%, a year-on-month decrease of 7.24%, and a net profit of 1.878 billion yuan to mother in 2024Q2, a decrease of 7.44% year-on-year and a decrease of 12.20% month-on-month.

PX's earnings remain strong, and the chemical sector's performance is expected to recover

The PX market is still in short supply, and product profitability remains strong. The price difference of 2024Q2 PX-crude oil is 3103 yuan/ton, which continues to remain at a high level. At the same time, the chemical sector is bottoming out. The price difference between 2024Q2 polyolefin and crude oil products was 2,935 yuan/ton, up 2.71% from month to month, but still narrowing by 7.87% year on year. The average price difference of 2024Q2 PTA-crude oil products was 315 yuan/ton, narrowing by 21.06% year on year and 2.51% month on month, and is still at a low level of prosperity. If a recovery in demand leads to the correction of product price differences, or a recovery in the performance of the chemical sector.

Coal prices continue to decline, and the cost side continues to be optimized

According to the 2023 annual report, the company has a coal processing capacity of 5 million tons/year. Since 2024, coal prices have fluctuated and declined. The average price of 2024Q2 coal was 750 yuan/ton, down 6.54% year on year and 5.08% month on month. The price of coal raw materials fell sequentially for two consecutive quarters, and the cost side continued to be optimized.

With the subsequent launch of new material production capacity, the industry chain is expected to further strengthen the company's 1.6 million tons/year high-performance resin and new materials project, which is expected to be fully put into operation in the second half of 2024. With the successive introduction of fine chemicals such as bisphenol A, polycarbonates, electronic grade DMC, and isopropyl alcohol, it is expected that the industrial chain will be further optimized, extended and strengthened. Meanwhile, 12 functional film projects at the Suzhou Fenhu base have been put into operation, and the 12 functional film projects at the Jiangsu Nantong base are expected to be put into operation in the first half of 2025.

Profit Forecasts, Valuations, and Ratings

We continue to be optimistic that the company's performance will be accompanied by the gradual recovery of the economy and the successive commissioning of new materials with high added value. The company's net profit for 2024-2026 is 8.4 billion yuan/10 billion yuan/12.3 billion yuan, corresponding EPS is 1.19 yuan/1.42 yuan/1.75 yuan respectively, and the corresponding PE is 11.2X/9.4X/7.6X, giving a “buy” rating.

Risk warning: (1) changes in crude oil prices affect the company's profit estimates; (2) risk of poor terminal demand; (3) risk of project construction falling short of expectations; (4) risk of large fluctuations in the US dollar exchange rate; (5) risk of force majeure.