Core synopsis

Polyolefin: Increased oil and coal price differentials will increase profits, and the cost advantage of the Inner Mongolia olefin project is expected to widen 1) It is expected that the price gap between crude oil and coal will continue to increase, and the cost advantage of coal-to-olefin will expand. According to IEA data, global demand for crude oil will continue to grow until 2030, with global crude oil supply and demand maintaining a tight balance, and oil prices are expected to remain relatively high; with the continuous increase in domestic installed capacity of renewable energy such as hydropower, photovoltaics, and wind power, and the increase in the number of hours used in hydropower in 2024, the domestic coal supply and demand relationship will tend to ease. If coal prices tend to decline, the cost of coal-based olefin over oil olefin is expected to continue to increase.

2) High-cost production capacity of oil heads is being eliminated, and the oversupply of olefins is expected to be alleviated. Against the backdrop of high oil prices and olefin capacity expansion, factories with relatively high operating costs have fallen into a state of loss, and some production capacity has already begun to be cleared in Europe.

3) The cost advantage of the company's Inner Mongolia project continues to expand. According to the company's announcement, the first plant in the Inner Mongolia olefin project will be put into trial production in October 2024 as planned. According to our estimates, due to advantages in energy consumption, material consumption, freight, investment, etc., according to the market prices of products and raw materials in August 2024, the net profit of the Inner Mongolia project was 2,811 yuan/ton per ton, an increase of 989 yuan/ton compared to 1,822 yuan/ton for the Ningdong project. We expect the company's gross profit of 2.9/6.9/8.6 billion yuan for polyethylene and 3.1/7.1/8.9 billion yuan for polypropylene in 2024/2025/2026, and profits in the olefin sector are expected to continue to grow at a high rate.

Coke: Profits may have bottomed out, and favorable policies are frequent, and the economy is expected to recover due to oversupply. Currently, the coke industry may be at the bottom of the boom. Currently, favorable real estate policies have been introduced, demand for a new round of large-scale equipment renovation is rising, demand for steel is expected to recover, and the coke boom is expected to bottom out and rebound. As of mid-2024, the company has a coke production capacity of 7 million tons/year. We expect the company's gross profit of coke to be 2.3/2.5/2.6 billion yuan in 2024/2025/2026, respectively.

Profit forecast and valuation: We expect the company's revenue to be 35.5, 54.9, and 59.1 billion yuan respectively in 2024/2025/2026, and net profit to mother of 7.4, 14.4, and 17.8 billion yuan, respectively. The corresponding PE is 17, 9, and 7 times, respectively, to maintain a “buy” rating.

Risk warning: Project approval and construction progress due to carbon neutrality policies fall short of expectations; risk of product and raw material price fluctuations; project commissioning falls short of expectations; sales growth falls short of expectations; risk of factory safety and environmentally friendly production; risk of deviation between measurement results and actual conditions.