Description of the event

The company released its 2024 semi-annual report. From January to June 2024, it achieved operating income of 112.539 billion yuan, an increase of 2.84% over the previous year; net profit to mother of 4.018 billion yuan, an increase of 31.77% year on year; and net cash flow from operating activities of 12.532 billion yuan, an increase of 3.25% year on year. Among them, revenue for the second quarter of 2024 was 54.148 billion yuan, up 1.62% year on year and down 7.27% month on month; net profit to mother was 1.878 billion yuan, down 7.44% year on year and 12.20% month on month.

Incident comments

Aromatic hydrocarbons and refined oil products maintain a high level of prosperity. Domestic: Travel demand continued to be high, and demand for refined oil products increased dramatically; gasoline demand improved markedly during the seasonal peak season in the overseas refined oil market, driving a significant increase in aromatic hydrocarbon profitability. The 2024Q2PX price spread was 343 US dollars/ton, up 5.8% from month to month. The company has an annual output of 5.2 million tons of Px, 1.8 million tons of pure benzene and other high-end chemical products that are scarce in China and have high added value, as well as refined oil products such as gasoline, diesel, and aviation kerosene with an annual output of 5.2 million tons or more. The aromatics sector has significantly benefited from the improvement in the popularity of aromatic hydrocarbons and refined oil products.

A major chemical enterprise with a deep integration of “oil, coal and chemicals” unique in the industry. For the first time in the industry, four major production capacity clusters of 20 million tons of refining, 5 million tons of coal chemicals, 1.5 million tons of ethylene, and 12 million tons of PTA were arranged in the same industrial park, which significantly optimized redundant processing processes such as transportation, storage and cooling, and saved a large amount of intermediate operating costs and logistics transportation costs. At the same time, the company has its own largest coal hydrogen production plant in the park, supplying 0.25 million tons of scarce pure hydrogen raw materials at low cost every year, and has built a high-power self-owned power plant with a total of 520 MW of energy efficiency leading in the industry, providing the refinery with a large amount of cheap electricity and steam at all levels. It has operated 2 0.3 million-ton crude oil terminals, 6 million ton self-prepared crude oil tanks, and other public engineering facilities for raw materials, finished products, tanks, storage, etc., significantly reducing various production and operation costs.

Reduce capital expenses, increase dividend ratios, and enhance shareholder returns. The company attaches great importance to a reasonable return on investment for investors. Since the restructuring and listing, the company has maintained a high percentage of cash dividends. The amount of cash dividends in 2023 accounted for 56.07% of net profit to mother in the consolidated statement. The company's “Shareholder Return Plan for the Next Five Years (2020-2024)” stipulates a balance ratio of < 70%, and the annual cash dividend is not less than 50% of the distributable profit achieved in that year. Starting in the second half of 2024, the company will also basically end the peak period of this round of investment, construction and capital expenditure. Subsequent business focus will place more emphasis on “optimizing operations, reducing debt, and strengthening dividends” under refined cost control. As the company's debt ratio continues to decline, the dividend ratio is expected to continue to rise.

Projects such as fine chemicals and new materials have been put into operation one after another. (1) 1.6 million tons/year high-performance resin and new material project, which is expected to be fully put into operation in the second half of 2024. The fine chemical project focuses on downstream extension of the carbon 2 industry chain and improvement of coal chemical-related production capacity, mainly including bisphenol A, polycarbonates, electronic grade DMC, isopropyl alcohol, ethanolamine, ethylenediamine, polyformaldehyde, acetic acid, PTMEG, etc.; (2) Functional film project: 12 functional film projects at Suzhou Fenhu base have been put into operation one after another. The electric diaphragm project is progressing steadily China, the entire project is expected to be completed and put into operation in the first half of 2025.

Without considering future changes in share capital, the company's net profit from 2024 to 2026 is expected to be 8.75 billion yuan, 11.21 billion yuan, and 13.57 billion yuan, respectively, corresponding to the closing price PE on August 22, 2024 being 10.8X, 8.4X, and 6.9X, respectively, maintaining a “buy” rating.

Risk warning

1. International oil prices fell sharply; 2. The growth rate of downstream demand fell short of expectations; 3. The progress of the project fell short of expectations.