Q3 Earnings improved, focusing on the full investment in the second phase of olefin and the recovery of the production industry. Maintaining a “buy” rating, the company released its 2024 three-quarter report. In the first three quarters of 2024, it achieved operating income of 12.15 billion yuan, net profit to mother of -0.032 billion yuan, a year-on-year decrease of 0.038 billion yuan, after deducting net profit not returned to mother of -0.072 billion yuan, a year-on-year loss of 0.04 billion yuan; in a single Q3, it achieved operating income of 5.264 billion yuan, +50.44% month-on-month, and achieved net profit to mother 0.011 billion yuan, +0.03 billion yuan month-on-month, achieved net profit after deduction of -0.005 billion yuan to mother, and a loss of 0.027 billion yuan month-on-month. Considering the expected cost reduction due to the scale effect of the Olefin sector after the second phase of Qingdao is fully put into operation, we raised the company's profit forecast for 2024-2026 and expect to achieve net profit of 0.11/3.7/6.5 (previous value -0.7/3.1/6.2) billion yuan in 2024-2026, or -91.9%/+3174.8%/+78.4% YoY; EPS is 0.01/0.43/0.77 yuan, corresponding to the current stock price PE is 446.1/13.6/7.6 times. The first phase of the Qingdao olefin project is mature, and the second phase has been fully put into operation. Future production capacity growth is expected to reduce costs and increase efficiency, maintaining a “buy” rating.

Production and sales of olefins increased dramatically during the second phase of production in Qingdao, with volume and price falling sharply, putting pressure on the olefin sector: 2024Q3 olefin production 0.459 million tons, +174.6% month-on-month, sales of 0.448 million tons, +194.3% month-on-month, price 6,651 yuan/ton, -0.6% month-on-month, and the price of the main raw material propane was 4,684 yuan/ton, +3.3% month-on-month. Prices fell slightly month-on-month, and raw material costs rose, but considering a sharp increase in production and sales or a reduction in single-ton energy and fixed costs after the second phase of production in Qingdao was put into operation, the gross margin of Q3 olefins is expected to remain stable month-on-month, and gross profit may increase significantly. Carbon black sector: 2024Q3 carbon black production 0.177 million tons, +19.8% month-on-month, sales 0.185 million tons, +25.8% month-on-month, tonne price 7115 yuan/ton, -1.1% month-on-month, and -8.3%/-5.2% month-on-month. Volume increases and prices have decreased slightly, raw material costs have dropped significantly, and carbon black Q3 gross profit may increase month-on-month. Coal coke sector: 2024Q3 coke products sold 0.316 million tons, -13.8% month-on-month, sales volume 0.315 million tons, -15.6% month-on-month, the price of a ton was 1,938 yuan, -7.3% month-on-month, and the price of the main raw material, coking coal, was 1,677 yuan/ton, -1.9% month-on-month. The volume and price of coke products plummeted, raw material costs fell slightly, and gross profit in Q3 fell month-on-month. Fine chemicals sector: fine chemical products output 0.0054 million tons, -28.5% month-on-month, sales volume 0.0055 million tons, -25.4% month-on-month, price per ton 17,596 yuan, -2.7% month-on-month. The volume and price of fine chemical products fell sharply during the period, and Q3 gross profit may have declined month-on-month.

The two major bases focus on recycling chemicals. Qingdao Phase II will be fully put into operation in the second half of the year: the construction of a comprehensive utilization project for new materials and hydrogen energy. The first phase of the project was fully put into operation in 2021, mainly including 0.9 million tons/year propane dehydrogenation, 0.45 million tons/year high-performance polypropylene, 0.48 million tons/year green carbon black recycling project, and 0.6 million cubic meter underground cave project. Qingdao Phase II: The 0.9 million tons/year PDH, 2*0.45 million tons/year high-performance polypropylene project was fully put into operation in the second half of 2024. The company's PDH production capacity will increase from 0.9 million tons/year to 1.8 million tons/year, and the olefin production capacity will increase from 0.45 million tons/year to 1.35 million tons/year, further amplifying the scale effect of olefin production capacity and optimizing the company's energy utilization structure, thereby improving the production capacity utilization rate of carbon black plants. It is estimated that olefin and The energy cost per ton and fixed costs of carbon black products will be significantly reduced, and the industry competitiveness of the company's products will be further highlighted.

Qihe base: Using coal as the raw material, coking as the base, and gas as the carrier, we are committed to developing in the direction of specialization and refinement of the industrial chain. At present, the construction of a new 0.04 million tons/year potassium sorbate project at the Qihe base has been basically completed. After the project is put into operation, the company's Qihe base will form a production pattern of 1.5 million tons/year of coke, 0.1 million tons/year of methanol, 0.1 million tons/year of synthetic ammonia, 0.3 million tons/year of deep processing of coal tar, 0.24 million tons/year of carbon black, 0.04 million tons/year of potassium sorbate and 0.015 million tons/year of p-methylphenol.

Risk warning: risk of falling product prices, risk of rising raw material prices, risk of new construction projects falling short of expectations.