The company's net profit to mother declined in the third quarter of 2024. The company's revenue for the third quarter of 2024 was 7.38 billion yuan (+1% YoY, -15% month-on-month), net profit 1.23 billion yuan (YoY -25%, -35% month-on-month), net profit of 1.39 billion yuan after deducting non-return net profit of 1.39 billion yuan (-19% YoY, -32% month-on-month); gross margin/net margin was 34.1%/16.7%, with an expense ratio of 9.6% for the period. The decline in profit was mainly due to a month-on-month decline in production and sales due to equipment maintenance of main products, and prices of some main products declined.

Production and sales of the company's main product, polyolefin, declined month-on-month, partly hampering performance. In the third quarter of 2024, the company's main product, polyethylene production and sales volume were 0.2486/0.2505 million tons, respectively, and polypropylene production and sales volume was 0.2569/0.2521 million tons, respectively. The year-on-year increase in production and sales stemmed from the Ningdong Phase III 1 million-ton olefin project contributing to an increase in production capacity. The month-on-month decline was mainly due to equipment maintenance. The price of polyethylene declined in the third quarter of 2024, while the price of polypropylene increased slightly. The average sales price of polyethylene/polypropylene without tax was 7023/6,807 yuan/ton, respectively (-3%/+2% YoY, -4%/+0.2% month-on-month). Crude oil prices declined in the third quarter of 2024, while coal prices were running steadily. The cost support for oil olefins weakened, and the cost gap between oil and coal olefins narrowed, partly affecting the company's profits.

Demand for coke continues to be under pressure. In the third quarter of 2024, the company's coke production/sales volume was 1.7796/1.7707 million tons, respectively, and production and sales were relatively stable. The average sales price of the company's coke without tax in the third quarter of 2024 was 1,308 yuan/ton (-12% year over year, -6% month over month). Downstream demand for real estate and other products is still weak, and coke prices continue to decline.

The price of raw coal rose slightly from month to month, and the price of coking coal fell. In the first three quarters of 2024, the average purchase price of the company's main raw materials, gasified feedstock coal/ coking refined coal/ thermal coal was 554/1086/427 yuan/ton, respectively, down from the previous year. According to Wind data, in the third quarter of 2024, the price of the original coal pit of 5,200 kcal in Inner Mongolia was 657 yuan/ton. The price of coal continued to fall year on year, but there was a slight increase over the previous month; the price of coking coal in Mongolia was 1193 yuan/ton, and the price of coking coal fell, and demand in the downstream steel market was still weak.

EVA volume and price fell month-on-month. The company's EVA production/sales volume in the third quarter of 2024 was 0.0293/0.026 million tons. The month-on-month decline was mainly due to equipment maintenance; the average unit price was 8152 yuan/ton, and the price fell month-on-month due to weak supply and demand.

The new construction project progressed smoothly. The Inner Mongolia olefin project is progressing smoothly and is expected to be gradually put into operation starting in the fourth quarter. In addition, the company's key construction projects such as needle coke and vinyl acetate are progressing in an orderly manner, and preliminary preparations for the Ningdong Phase IV olefin project have been fully initiated.

Risk warning: Project commissioning falls short of expectations; raw material prices rise; downstream demand falls short of expectations, etc.

Investment advice: The expansion of the production capacity of the company's main product, polyolefin, is the core source of future profit growth.

However, due to equipment maintenance affecting production and sales of main products and weak product supply and demand affecting prices, we lowered the company's net profit forecast for 2024-2026 to 65.52/122.06/124.13 (original value was 8.291/13.872/14.104 billion yuan), corresponding EPS was 0.89/1.66/1.69 yuan, and the corresponding PE is 17.9/9.6/9.5X, maintaining a “superior to market” rating.