Incident: The company released its 2024 three-quarter report, with outstanding performance.

The first three quarters: achieved operating income of 32.275 billion yuan, +0.71% year over year; net profit to mother of 3.693 billion yuan, +7.64% year over year; net profit after deducting non-return to mother of 4.088 billion yuan, +20.48% year on year;

Q3 single quarter: Achieved operating income of 12.875 billion yuan, +9.89% year over month, +21.51% month on month; net profit to mother 1.637 billion yuan, +2.08% year on month, +58.36% month on month; net profit without return to mother of 1.854 billion yuan, +32.00% year on month, +58.27% month on month.

Non-recurring losses of $0.217 billion in the third quarter. In the third quarter, the company's non-recurring profit and loss items totaled -0.217 billion yuan, that is, negative non-recurring profit and loss, accounting for 13.28% of non-return net profit. Among them, the total impact of fair value changes in profit and loss from financial assets and financial liabilities held by the company, and the total impact of disposal of financial assets and financial liabilities was -0.25 billion yuan, mainly due to the effects of silver leasing of the ethylene oxide device catalyst and changes in forward foreign exchange valuation.

The advantages of the ethane route are still significant, and the scale of the third and fourth phases has doubled. The company's C2 raw material is US ethane. Due to record high oil and gas extraction in the US, ethane surplus intensified, and raw material prices continued to hover at historically low levels.

According to Bloomberg, as of October 23, the price of ethane in the MB region of the US was only 19.9 cents/gallon. The quantile value for the past 6 years was only 16.1%, which is low cost. Moreover, the company's comprehensive energy consumption per ton of ethane is less than 300kg of standard oil, far lower than the 580-640kg standard oil of naphtha. In comparison, the company's light hydrocarbon cracking costs are low, energy consumption is low, and route advantages are outstanding. After all phases 3 and 4 are put into operation, the company will add 2.5 million tons of ethane cracking to ethylene, doubling the total processing capacity.

Orders have been placed for Phase 3 and 4 ships and production has begun, and volume growth can be expected. Ethane vessels required to return ethane from US ports require exclusive customization. The investment is large and the cycle is long. The progress of ship construction is a reflection of the progress of project construction. The company's Phase III ethane vessels were ordered for construction in July 2023 and are expected to be delivered in 2026, in line with the construction schedule of the project. The fourth phase of the eight ULEC ethane carriers has been ordered and built in two batches in August and October 2024. They are expected to be delivered in 2027, which is in line with the installation's commissioning and operation schedule.

The first phase of 0.8 million tons of butyl octanol was put into operation, further reducing production costs. The company's C3 business industry chain is a closed loop of propylene, acrylic acid, and polycarbonate is an important raw material for acrylic in C3 terminal products.

In July 2024, the first phase of the company's 0.8 million ton polycarbonate project was put into operation. The second phase installation is being completed and is expected to be put into operation in the near future. The commissioning of polycarbonic alcohol means that the company has achieved self-supply of core raw materials, further reduced production costs, and increased profitability of acrylates.

Investment advice: Affected by product prices, we adjusted the company's net profit forecast for 2024-2026 to 5.395/6.49/7.684 billion yuan, respectively; the corresponding PE was 12/10/8 times, respectively. Maintain a “buy” rating.

Risk warning: Downstream demand falls short of expectations, industry competition intensifies, and production capacity falls short of expectations.