Company announcement: In the first half of 2024, the company achieved operating income of 48.21 billion yuan, a year-on-year increase of 30.67%; net profit to mother of 1.07 billion yuan, an increase of 911.35%; net profit after deducting non-return to mother 0.9 billion yuan, an increase of 2799.52% year-on-year. Among them, Q2 achieved operating income of 27.1 billion yuan, an increase of 28.38% over the previous month; net profit to mother was 0.49 billion yuan, down 16.31% from the previous month; net profit after deducting non-return to mother was about 0.37 billion yuan, a decrease of 31.92% from the previous month. 24H1's gross margin reached 6.19%, an increase of 0.25pct over the previous year, mainly due to an improvement in the filament industry. In terms of expenses, the 24H1 company's expenses rate remained flat during the period. Among them, financial expenses increased by 106.32% year on year, mainly due to the increase in interest expenses due to increased short-term loans.

Q2 filament sales increased month-on-month, and the price difference improved significantly in June. With additional production capacity put into operation, 24H1's polyester filament production increased significantly year-on-year. Among them, POY/FDY/DTY production reached 2.36/0.58/0.28 million tons respectively, up 0.47/0.26/0.04 million tons, respectively. In terms of production and sales, Q2's filament product sales increased month-on-month. Among them, POY/FDY/DTY increased 0.54/0.12/0.04 million tons, respectively, with production and sales rates of 105%/93%/97%, respectively. In terms of price spread, the overall price spread of Q2 filament decreased slightly from month to month, but there was a marked improvement in June. According to Wande data, we calculated that the average price difference in the 24Q2 POY/FDY/DTY industry was 1080/1570/2489 yuan/ton, respectively, -11/-123/+123 yuan/ton month-on-month, but benefited from leading polyester filament companies established price alliances in late May and used cost bonuses to raise prices. The average price difference of POY in June reached 1,256 yuan/ton, a sharp increase of 28% over May. More prominent. At present, demand for filament in the July-August off-season is relatively weak, and the price spread has narrowed, but the industry is about to enter the “gold nine silver ten” peak season. Demand is expected to increase, and the price difference is expected to gradually recover.

Under the trend of improving the industry pattern, I am optimistic about the restoration of the long silk economy. In terms of domestic demand, data from the National Bureau of Statistics shows that in January-July of this year, retail sales of clothing, shoes, hats, and knitwear were 803.3 billion yuan, with a year-on-year increase of 0.5%; in terms of external demand, the sales ratio of US clothing stores has rebounded since May of this year. As of June 2024, the inventory sales ratio of domestic clothing wholesalers in the US has dropped to 2.3, down 0.58 year on year from the same period in '23. With the end of inventory removal in the US garment industry, overseas is expected to usher in a new round of inventory replenishment cycle. Considering the impact of hot weather and the low demand season this year, the filament industry adopted a promotional storage strategy in July-August. According to CCF data, as of August 23, POY/FDY/DTY inventory reached 23/21.5/29.5 days respectively, and the removal effect was good. Looking ahead to the second half of the year, polyester filament is about to enter the 10th peak season of gold, nine, and silver. Demand is expected to improve, and inventories will fall to a relatively low level. The future peak season has a good basis for price increases, and there are signs that the industry's new production capacity will be delayed. In the medium to long term, against the backdrop of an improvement in the industry's supply and demand pattern, we expect the profit center of filament to gradually rise.

The return on refining and chemical investment has increased markedly, and there are expectations that the economy will improve. According to the company announcement, 2024H1's return on investment in joint ventures was approximately 0.406 billion, an increase of 0.756 billion yuan over the previous year. We expect the increase in performance to be mainly due to inventory earnings due to rising oil prices and the recovery of the chemical industry. In terms of price spread, we calculated that the average price spread of Zhejiang Petrochemical refining and chemical in 24Q2 was 1,493 yuan/ton, down 4% from month to month, but aromatic hydrocarbon products remained high in the second quarter. According to Longzhong information, the 24Q2 PX price spread increased by 11 US dollars/ton month-on-month, and profits increased. Looking forward to the future, driven by the increase in non-OPEC production, we expect global crude oil supply and demand to ease, and the oil price center is expected to decline, driving improvements on the cost side of refining and chemical refining. It is expected that refining and chemical performance will continue to improve, leading to an increase in the company's investment income.

Investment analysis: Considering that off-season demand for polyester filaments is lower than our expectations, we lowered our 2024-2026 profit forecast to 2.54, 3.917, and 5.339 billion (originally 3.092, 4.475, 6.016 billion), corresponding PE is 11X, 7X, and 5X, respectively, maintaining a “buy” rating.

Risk warning: International oil prices fluctuated greatly; the recovery in downstream polyester demand fell short of expectations; the commissioning of projects under construction fell short of expectations, etc.