The Zhitong Finance App learned that Anxin International released a research report stating that China Xuyang Group (01907) had revenue of 43.1 billion/ +12.3% in '22, net profit of 1.86 billion/ -28.4%, gross profit of 9.9% /-4.5ppt, and net interest rate of 4.3% /-2.4ppt. The impact of lower coke prices in the second half of '22 narrowed the coal focus gap, and the company's profit declined markedly in the second half of '22. The company's production capacity will enter a stage of rapid growth in the future, and the bank is optimistic about its future development. The bank believes that supply and demand for coke will remain in a tight balance in the future, and that the coke gap is expected to bottom out. The bank expects the EPS for 23/24/25 to be HK$0.71/0.89/0.95. Maintain the “buy” rating with a target price of HK$6.4.
Anxin International's main views are as follows:
The coke project came to fruition as scheduled
Revenue from the coke and coking business in '22 was 16.38 billion/ +2.9%, and profit before tax was 1.84 billion/ -35%, of which a loss of $36 million was lost in the second half of the year, mainly due to the narrowing of the coal focus gap. The annual coke business volume was 15.243 million tons, an increase of 3.6% over the previous year. The Inner Mongolia Xuyang Sino Fuel Project was put into operation in the second half of the year with an annual output of 1.5 million tons, contributing to production in the second half of the year. A further 1.5 million tons of production capacity will be completed in 2023. The Indonesian project is expected to be completed in stages in mid-2023 and early 2024. Among them, the Xuyang Weishan project controlled by the company has a total production capacity of 4.8 million tons, and is expected to start production of 3.2 million tons in 2023. The project is under construction according to plan.
The coal focus gap is expected to bottom out and pick up
Coking coal and coke prices went on a roller coaster ride in '22. Prices gradually rose in the first half of the year and continued to fall in the second half of the year. The company's coal focus difference in the second half of the year was 380-400 yuan/ton. Looking at the first quarter of '23, the coal focus gap has bottomed out. Along with economic recovery, downstream steel demand is gradually picking up, and the coke industry's environmental protection policy will continue to suppress supply. It is expected that coke will be in a tight balance in the future. At the same time, an increase in imported coal will ease the pressure on coking coal prices and benefit the future performance of coal focus differences.
Caprolactam has been put into production one after another to increase profits
The chemical business revenue was 15.4 billion/ +22%, profit before tax was 550 million/ -7.2%, and the chemical business volume reached 5.52 million tons/ +48%. The decline in profits was mainly offset by the rise in the price of chemical products by the rise in the price of raw materials. The construction of all caprolactam production capacity was completed in '22, with a total production capacity of 750,000 tons. Due to the improved supporting facilities for the new production capacity, it is expected that the operating cost of caprolactam will be reduced by 1,900 yuan/ton compared to the original, and it has a significant competitive advantage in the industry. At the same time, the chemical sector continues to expand downstream to high profits, and PA6 and PA66 businesses are negotiating cooperation. The company's hydrogen production capacity ranks first in the Beijing-Tianjin-Hebei region, and there is good room for development with policy support.
Operational management and trade are important starting points for expanding business volume
Operation and management business revenue was 117 million/ -55%, profit before tax was 16 million/ -6%, coke production capacity was 3.3 million tons/ +43%. Two new projects were added, Luoyang Longze and Shanxi Zhongjin Taihang, and the Jiangxi Hongyu project was withdrawn. Revenue from trade operations was 11.2 billion/ +15%, profit before tax of 170 million/ -30%, and trade volume of 6.87 million tons/ -1.3%, mainly brought about by fluctuations in coke prices.
The company's production capacity will enter a stage of rapid growth in the future, and the bank is optimistic about its future development
The bank believes that supply and demand for coke will remain in a tight balance in the future, and that the coke gap is expected to bottom out. Through refined management and scale expansion, the company is expected to further reduce costs and expand profits per ton. Considering the current decline in coke prices compared to '22, the bank lowered its net profit for 23/24/25 to RMB 27.2/34.3/3.64 billion. The corresponding EPS was HK$0.71/0.89/0.95. Maintaining the “buy” rating and lowering the target price to HK$6.4, there is room for a 70% increase from the current stock price.