Incident: According to Wind data, in the 2024Q3 single quarter, the company achieved operating income of 65.261 billion yuan, +2.44% year over month; net profit to mother of 1.087 billion yuan, -59.01% year on month, -42.14% month on month; net profit without return to mother of 1.085 billion yuan, or -59.86% year on month, and -37.05% month on month.

Comment:

2024Q3, weakening oil prices, compounding the narrowing of the price spread of aromatic hydrocarbons, dragged down the company's performance. Our published in-depth research report “From the perspective of US shale oil costs, where is the support level of oil prices? “——Also discussing the irrationality of Trump's deal” mentioned that oil prices declined significantly in Q3 due to the combination of the three negative factors of OPEC+ resumption of production, expectations of declining US demand, and expectations of Trump's election. According to Wind data, the spot price of Brent crude oil fell from 88.16 US dollars/barrel on July 1 to 73.09 US dollars/barrel on September 30, and the drop in oil prices was quite obvious. Affected by falling oil prices and declining industry sentiment, the price spread of aromatic hydrocarbons also narrowed markedly in Q3. According to Wind data, the average quarterly price difference of PX-naphtha was about 245 US dollars/ton, compared with 319 US dollars/ton in Q2, down about 23.11% month on month; in addition, the average quarterly price difference of 2024Q3 and PTA-0.655PX was about 58 yuan/ton, compared with 227 yuan/ton in Q2, down about 74.58% from month to month. 2024Q3

Weakening oil prices, compounded by narrowing price spreads on major products such as PX and PTA, dragged down the company's Q3 performance.

The company's alpha attributes are obvious. We are optimistic about the company's profit recovery, and the projects under construction will open up room for growth. Starting with the processing capacity of 20 million tons of crude oil and 5 million tons of raw coal, the company has the capacity to produce 5.2 million tons of Px, 1.8 million tons of pure benzene, 0.14 million tons of butadiene, 1.2 million tons of MTBE, etc.; in the future, as small refineries with high production costs and old installations are gradually eliminated, the concentration of the refining and chemical industry will increase dramatically. The company has outstanding advantages in policy support, process technology, industrial collaboration, etc., and has strong market competitiveness. We are strongly optimistic about the company's profit recovery. According to the company's semi-annual report, 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; 12 functional film projects at the Suzhou Fenhu base have been put into operation one after another, and another 12 functional film projects and lithium battery diaphragm projects at the Nantong base are progressing steadily. It is expected that they will all be completed and put into operation in the first half of 2025, opening up room for future growth.

Profit forecast and valuation: Optimistic about the company's profit recovery. The company is expected to achieve net profit of 7.14/9.051/11.191 billion yuan in 2024/2025/2026, corresponding PE of about 14/11/9 times, respectively. It covers for the first time, and gives a “buy” rating.

Risk warning: Oil prices fluctuate greatly, supply and demand deteriorate, performance forecasts and valuations falling short of expectations, etc.