Key points of investment

The 2024 semi-annual results maintained a high year-on-year increase, and the performance was in line with expectations: in the first half of 2024, the company achieved operating income of 112.539 billion yuan, an increase of 2.84% year on year; net profit attributable to shareholders of listed companies was 4.018 billion yuan, an increase of 31.77% year on year, in line with market expectations. Gross sales margin was 11.85%, +0.78pct year over year and +0.69pct month-on-month. Net sales margin was 3.58%, +0.79pct year over year, and -0.09pct month-on-month.

PTA and new materials business volume and energy costs have declined, and the company's “oil and coal conversion” integration has outstanding comprehensive cost advantages: by sector, 2024H1 refining products achieved revenue of 45.997 billion yuan, -27% year over year, sales volume -24% to 8.5503 million tons, price -2.97% year on year to 5379.55 yuan/ton; PTA achieved revenue of 38.732 billion yuan, +35% year on year, sales volume +30% to 7.345 million tons, price ratio +3.8% Up to 5273.21 yuan/ton; new material products achieved revenue of 21.062 billion yuan, +41% year over year, sales volume +47% year over year to 2.599 million tons, and price -4.07% to 8103.95 yuan/ton. On the cost side, the average purchase price of 2024H1 coal was 710 yuan/ton, down 19.9% year on year, and the average purchase price of crude oil was 4,323 yuan/ton, up 5.5% year on year.

“Excellent chain, chain extension, and chain repair” creates the second growth pole: 1) The company's 1.6 million tons/year high-performance resin and new materials project, which mainly includes bisphenol A, polycarbonate, electronic grade DMC, isopropyl alcohol, ethanolamine, ethylenediamine, polyformaldehyde, acetic acid, PTMEG and other products. It is expected to be fully put into operation in the second half of 2024; 2) Although Kanghui New Materials is discontinued, it will not affect the commissioning of its projects. Among them, Kanghui New Materials is expected to become the world's largest functional membrane material company with the largest production capacity and the most advanced process technology., Suzhou Fenhu base 12 line functions The film project has been put into operation one after another. Another 12 functional film projects and lithium battery diaphragm projects at the Nantong base are progressing steadily. All projects are expected to be completed and put into operation in the first half of 2025.

Cash flow returns are good, completing the 2023 cash dividend: Hengli Refining and Chemical has a first-mover advantage, stable plant production capacity operation, and good cash flow returns. Since 2019, the monetary capital has been more than 15 billion yuan, and 2024H1 has reached 21.289 billion yuan. The company completed the 2023 equity distribution, with a cash dividend of 0.55 yuan (tax included) per share, with a total cash payment of 3.871 billion yuan (tax included), and a dividend payment rate of 56.07%. Since the restructuring and listing in 2016, Hengli Petrochemical has paid a total cash dividend of 22.371 billion yuan, accounting for 41.08% of the total net profit returned to mother in 2016-2023.

Profit forecast and investment rating: We forecast the company's EPS of 1.19 yuan, 1.57 yuan and 1.90 yuan respectively from 2024 to 2026.

The corresponding PE (calculated at the closing price on August 23, 2024) is 11.20 times, 8.48 times, and 7.01 times, respectively. The company still has good profitability under medium and high oil prices, and the dividend rate is high. We are optimistic about the company's leading attributes with stable cash flow over a long period of time and continued to increase dividends, and maintain a “buy” rating.

Risk warning: raw material prices fluctuate sharply; downstream demand falls short of expectations; project construction falls short of expectations, etc.