occurrences

Hengli Petrochemical released its report for the third quarter of 2024 on October 24, 2024. In the first three quarters of 2024, the company achieved total operating income of 177.857 billion yuan, an increase of 2.71% over the previous year, and realized a net profit of 5.105 billion yuan to mother, a decrease of 10.45% year on year. Among them, 2024Q3 achieved total revenue of 65.261 billion yuan, up 2.44% year on year, up 20.44% month on month, and realized net profit of 1.087 billion yuan, down 59.01% year on year and 42.14% month on month.

Chemicals are still in a state of grinding down, dragging down Q3 results

The average price difference between 2024Q3 polyolefin and crude oil was 3,211 yuan/ton, up 16.10% year on year and 9.39% month on month, but it is still bottoming out. Meanwhile, the average price spread of 2024Q3 PTA-PX was 315 yuan/ton, an increase of 66.57% year on year, and basically flat from month to month. The company has 1.5 million tons/year ethylene plant and 16.6 million tons/year PTA production capacity. If consumer demand for chemical products picks up, the company's chemical profitability may continue to improve.

The apparent consumption of refined oil products declined year on year, and the profitability of the refining sector declined to 0.097 billion tons in 2024Q3, down 4.87% year on year. Refining sector differentiation continued. The average price difference between diesel, gasoline, and aviation coal cracking was 1,099 yuan/1,619 yuan/1,416 yuan/ton, respectively, down 9.19% /7.53%/29.24% year on year, respectively. At the same time, the average price spread of PX-crude oil was 2,760 yuan/ton, down 16.91% year on year. The company currently has 20 million tons/year crude oil processing capacity and 5.2 million tons/year Px production capacity. The price spread for refined products has narrowed, and the sector's profitability has declined.

Coal prices have declined, and the cost side has been optimized

The average price of 2024Q3 coal was 848 yuan/ton, down 2.09% from the previous year, and was basically flat from month to month. The company has 5 million tons/year coal processing capacity, and the price of coal raw materials continues to be low. The company's cost side advantage is outstanding, and it has strong market competitiveness.

It is expected that new materials will be put into production one after another to open up room for growth

The company's 1.6 million tons/year high-performance resin and new materials project is expected to be fully put into operation in the second half of 2024. The 12-line functional film and lithium battery diaphragm project at the Nantong base is progressing according to plan, and the project is expected to be fully put into operation in the first half of 2025. With the gradual release of the company's new material production capacity, the industry's “excellent chain, chain extension, and chain repair” results have been shown. If downstream consumer demand improves, the company is expected to open up room for growth in the future.

Profit Forecasts, Valuations, and Ratings

We continue to be optimistic that the company's performance will be accompanied by the gradual recovery of the economy and the successive commissioning of new materials with high added value, but since chemicals are still bottoming out, we expect the company's net profit to be 6.8 billion yuan/9.8 billion yuan/12.3 billion yuan for 2024 to 2026, 0.97 yuan/1.40 yuan/1.75 yuan for EPS, respectively, and 1 4.9X/10.3X/8.2X to maintain a “buy” rating.

Risk warning: Changes in crude oil prices affect the company's profit estimates; risk of poor terminal demand; risk of project construction falling short of expectations; risk of large fluctuations in the US dollar exchange rate; risk of force majeure.