Announcing positive results, and net profit is expected to increase 100% year over year: the company recently announced Yingxi. As of December 31, 2020, Guimu's net profit was about 1.1 billion yuan, an increase of about 100% over the previous year. Mainly because downstream demand for the company's main products ethylene oxide, ethylene glycol and polypropylene continued to improve during 2020, the decline in product prices was far less than the decline in the cost of the main raw materials methanol, ethylene and propylene. The annual prices of ethylene oxide, ethylene glycol and polypropylene in 2020 were 7143 yuan/ton, 3824 yuan/ton and 7,759 yuan/ton respectively, down about 8.0%, 19.4% and 10.5% respectively from the same period, while the average price of methanol, the main raw material, was 1,921 yuan/ton, down 16% from the same period. Judging from the latest prices, ethylene oxide, ethylene glycol, and polypropylene have bottomed out since April last year. As demand continues to pick up, it is expected that the upward trend will continue in the future.
The additional production capacity will bring significant profit growth, and future results can be expected: construction of the company's new production capacity recently began, mainly adding 1.25 million tons/year olefin plant and 1 million tons/year EO/EG co-production plant. Among them, the raw materials required for the 1.25 million tons/year olefin plant are ethane, propane, and naphtha. The products include 700,000 tons of ethylene (supporting the new EO/EG production capacity of 1 million tons/year), 300,000 tons of propylene, and 200,000 tons of butadiene. The biggest advantage of this device is the variety and flexibility of raw material selection. The company can decide to use ethane and/or propane and/or naphtha as raw materials based on price, market supply, and procurement requirements, so it also indirectly irons out the cyclicality of the MTO device caused by fluctuations in methanol prices.
We expect this device to be put into production from the second quarter to the third quarter of 2022, with mass release in 2023.
The new EO/EG co-production unit is expected to be put into operation by the end of this year and will be released in 2022. Additionally, the company is likely to add 30-450,000 tons of polypropylene production capacity between this year and next year.
The target price was raised to HK$8.0 to maintain the purchase rating: the company's profit level fluctuated as methanol costs fluctuated. The price of methanol fell from a high of 3,100 yuan/ton in 18 to 2,300 yuan/ton in 19, and fell further to 1,900 yuan/ton last year. The company's profit level increased markedly. Based on current production capacity, every 100 yuan decrease in methanol price increases net profit by about 180 million yuan. A lot of methanol production capacity was added this year, so methanol prices will continue to be low, and performance is expected to remain stable. After 2022, with the commissioning of new production capacity and the cyclical weakening of the company's industrial chain, the company's performance is expected to usher in explosive growth. We expect the company's net profit to be $1.1 billion, $970 million and $1.46 billion respectively in 2020-2022. The target price was raised to HK$8, equivalent to 8 times PE and 1.3 times PB in '21. There is room for an increase of 102.9% from the current price of HK$3.94, maintaining the buying rating.