3Q24 results are in line with our expectations

The company announced 1-3Q24 results: revenue of 49.197 billion yuan, +11.3% year on year; net profit to mother of 0.746 billion yuan, -15.9% year on year; net profit without return to mother 0.637 billion yuan, -13.6% year on year.

That is, 3Q24's revenue was 17.924 billion yuan, +11.9% YoY, +6.6% month-on-month; net profit to mother 0.141 billion yuan, -65.4% YoY, -57.2% month-on-month; net profit without return to mother was 0.098 billion yuan, -73.4% YoY and -68.2% month-on-month. The results were in line with our expectations.

1-3Q24 achieved a polyester filament output of 5.57 million tons (+12.7% YoY), a sales volume of 5.46 million tons (+11.6% YoY), and a net profit of about 136 yuan per ton. Among them, 3Q24 achieved 1.86 million tons of polyester filament production (+4.3% YoY, -0.7% QoQ) and achieved sales volume of 2.07 million tons (+20.7% YoY, +14.4% QoQ); net profit per ton was about 68 yuan, a decrease of 114 yuan/ton over the previous month.

Development trends

The 3Q24 oil price trend declined, and filament profits were under pressure. In July-September, the price of WTI crude oil fell from 83 US dollars/barrel to 68 US dollars/barrel. The price of filament fell as oil prices declined, and POY/FDY/DTY prices fell 1,120/1,085/940 yuan/ton, respectively, from a high point. The fall in filament prices in 3Q24 had a big impact on performance. In addition, the company accrued asset impairment losses of 0.066 billion yuan in the third quarter, which had a certain impact on profits. Oil prices have stabilized since 4Q24, and the long-silk boom is expected to improve. Since October, the price of filament has rebounded along with oil prices, and the price difference has basically remained flat compared to 3Q24. Currently, the operating rate of direct-spun filament in Jiangsu and Zhejiang is around 93%, and the number of POY/FDY/DTY inventory days is 20.3/20.9/27.0 days, and the inventory level is quite reasonable. We expect 4Q24 filament profits to improve.

The competitive landscape of the industry has improved, and it is expected to develop in an orderly manner after 2025. The increase in the supply of polyester filament in 2025 is mainly due to new production capacity such as Xinfengming, Tongkun Co., Ltd., and the relocation and resumption of production by Hengyi Petrochemical. We expect the total volume to be within 2.2 million tons, accounting for about 4% of the industry's current production capacity; the supply-side growth rate is low, and we expect the filament boom to be maintained. In 2026 and beyond, only Tongkun Co., Ltd. and Xinfengming will increase the production capacity by 1-2 sets of new installations every year. The additional production capacity is relatively manageable. We believe the industry is expected to enter a new stage of orderly development.

Profit forecasting and valuation

Due to fluctuations in crude oil prices and demand for filament slightly lower than expected, we lowered 2024/2025 net profit by 35.2% and 30.4% to 1.067 billion yuan/1.578 billion yuan, and introduced 2026 net profit of 2.011 billion yuan. When the stock price corresponds to the 2024/2025/2026 price-earnings ratio of 16.9/11.4/8.9 times. Maintaining an outperforming industry rating, due to the valuation switch, we lowered our target price by 9.4% to 13.5 yuan, corresponding to the 2024/2025/2026 price-earnings ratio of 19.3/13.0/10.2 times, which has 14.5% upside compared to the current stock price.

risks

Industry leaders continued to expand production on a large scale; oil prices fell sharply.