Description of the event

The company released its 2024 semi-annual report. From January to June 2024, it achieved operating income of 14.374 billion yuan, an increase of 1.13% over the previous year; net profit to mother of 0.11 billion yuan, an increase of 27.90%; and net cash flow from operating activities of 0.469 billion yuan, a year-on-year decrease of 63.19%.

Among them, revenue for the second quarter of 2024 was 7.261 billion yuan, up 2.95% year on year, up 2.08% month on month; net profit to mother was 0.055 billion yuan, up 58.66% year on year, down 2.23% month on month.

Incident comments

PDH's popularity is at the bottom of history, and there is plenty of room for future development of the company's hydrogen resources. The company's PDH production capacity and PP production capacity rank among the highest in China. In the future, after the completion of the Maoming project, it will become the world's largest PP producer. Ningbo base: currently 2 PDH units with a production capacity of 0.6 million tons/year, 3 PP units with a production capacity of 0.4 million tons/year, and a hydrogen filling station with a capacity of 8,000 m3/h; Zhangjiagang base: 1 PDH unit with a production capacity of 0.6 million tons/year, 1 PP unit with a production capacity of 0.4 million tons/year, and a hydrogen fueling station with a capacity of 1000 kg/12h; Maoming base: 1 set with a production capacity of 0.6 million tons PDH equipment per year, 1 PP unit with a production capacity of 0.4 million tons/year, 1 ammonia synthesis plant with a production capacity of 0.2 million tons/year, and supporting facilities. During the reporting period for the first half of 2024, the Ningbo base sold about 0.0091 million tons of hydrogen, and the Zhangjiagang base sold about 0.0072 million tons of hydrogen. The total sales volume increased by about 30% over the same period last year. The increase in hydrogen sales effectively mitigated the pressure on performance due to the narrowing of the PDH-PP price spread.

Develop a composite materials and hydrogen energy industry chain centered on carbon fiber. Based on the C3 industry chain, the company develops composites and hydrogen energy industry chains with carbon fiber as the core through hydrocarbon separation. The company focuses on new productivity with carbon fiber as the core, and cooperates with the carbon fiber research team of Shandong University to jointly build a laboratory to develop high-quality, low-cost carbon fibers with independent intellectual property rights. At the same time, the company actively promotes research and development of downstream application products with carbon fiber as the core and polyolefin as the base material, covering four major industries, including aerospace and military, low-altitude flight, lightweight automobiles and rail transit, and new building materials.

Combining the company's own hydrogen energy production and deep cooperation with the China Nuclear Power Group, we can achieve higher value utilization of resources. The company joined hands with China Nuclear Industry Group Co., Ltd. to build a high-temperature air-cooled reactor nuclear power plant in Maoming. Production costs are greatly reduced through the gradual use of high-temperature steam. Achieve green, low-carbon, and sustainable development goals by consuming green electricity and producing hydrogen from nuclear energy.

The company's PDH project is based in the park, and green chemicals create high barriers. The company is based on the Maoming Green Chemical and Hydrogen Energy Industrial Park, focusing on carbon fiber, 3D printing, hydrogen energy industries, etc. The park's port and terminal resources are second to none in the country, and the company's cost moat is built. From the analysis of downstream consumer market capacity and import and export transportation costs, the Maoming base has significant innate advantages.

The Maoming base currently has 1 PDH unit with a production capacity of 0.6 million tons/year, 1 PP unit with a production capacity of 0.4 million tons/year, 1 ammonia synthesis plant with a production capacity of 0.2 million tons/year, and supporting facilities. After nearly 30 years of intensive business development, the company has become the world's leading LPG trader and PDH producer. The company has established a closed loop business model for global growth integrating production, sales, R&D and trade. The business covers LPG trade, transportation and storage, R&D, production and sales of polymer polymers, carbon fiber and hydrogen. The comparative advantage is clear, particularly in the supply of propane.

Assuming no change in share capital, the company's net profit for 2024-2026 is expected to be 0.28 billion yuan, 0.46 billion yuan, and 590 million yuan, respectively. Corresponding to the closing price PE on August 26, 2024, the PE is 47.9X, 28.7X, and 22.6X, respectively, maintaining a “buy” rating.

Risk warning

1. Propane prices have been high for a long time, leading to poor PDH prosperity; 2. Project commissioning progress falls short of expectations; 3. Terminal demand growth falls short of expectations.