Incident: The company released its 2022 semi-annual report. The company achieved operating income of 24.2 billion yuan in the first half of 2022, +29.4% year on year, and achieved net profit of 501 million yuan, -25.2% year on year; of these, Q2 achieved revenue of 13.5 billion yuan in a single quarter, +23.4% year on year, +25.9% month on month, and achieved net profit of 217 million yuan, +42.4% year on year, -23.7% month on month.
Comment:
Refining margins were under pressure, and Q2 performance declined month-on-month: the average price of Q2's main product polyethylene in 2022 was 9221 yuan/ton, +11% year on year, +4% month on month; the average price of urea was 2,950 yuan/ton, +26% year on year, +8% month on month; the average price of diesel was 8,584 yuan/ton, +38% year on year, +10% month on month; average price of polypropylene was 8870 yuan/ton, +3% year on month. Prices of the company's main products rose year on year, which led to a rapid year-on-year increase in Q2 revenue in '22. The average price of Brent crude oil futures in Q2 2022 was 112.08 US dollars/barrel, +14% from Q1. The sharp rise in oil prices put pressure on the company's refining gross profit, causing Q2 performance in Q22 to decline month-on-month.
Jointly with Saudi Aramco, the group's refining and chemical project is expected to advance rapidly: the crude oil processing capacity of the project is 300,000 barrels per day (equivalent to 15 million tons/year) and is expected to be put into operation in 2024. In addition, Saudi Aramco will supply up to 210,000 barrels of crude oil per day (equivalent to 10 million tons/year) of crude oil for the project to guarantee the supply of crude oil for the project. As the only listed company in the petrochemical sector under the China Ordnance Industry Group and one of the largest domestic integrated comprehensive petrochemical companies for refining and chemicals, Huajin Co., Ltd. has obvious advantages in production scale and vertical integration. The Saudi Aramco refining and chemical integration project is shared by North Huajin Chemical Group, a holding subsidiary of the group company Military Engineering Group. Huajin Co., Ltd. is expected to participate in the construction of the project in due course. At that time, the competitiveness of the company's petrochemical and fine chemical sectors will be significantly enhanced.
Currently, PB is less than 1 times, and there is room for valuation repair: from the perspective of PB valuation, the valuation level of state-owned chemical companies has always been lower than the chemical industry as a whole, and the current valuation level of listed state-owned chemical companies, especially listed chemical central enterprises, is at the bottom of history. The company's stock price has continued to fall since the second half of 2017, and PB-MRQ fell below 1.0 at the end of May 2018. The company's stock price fell back and entered a stable period after a slight rebound in early 2019. Although the company's stock price has risen since mid-2020, the overall PB valuation is still at the bottom. As of August 24, 2022, the company's PB-MRQ was only 0.77 times. As large-scale refining and chemical integration projects continue to advance in Northeast China, the company's growth space is gradually opening up, and future valuations are expected to be repaired.
Profit forecast, valuation and rating: The Group's refining and chemical project is expected to advance rapidly. The company is expected to participate in the construction of the project in due course, and growth is expected. Therefore, we maintain the company's 22-24 profit forecast. It is estimated that the company's net profit for 2022-2024 will be 9.15/10.84/1,222 billion yuan respectively, equivalent to EPS of 0.57/0.68/0.76 yuan respectively, maintaining the “buy” rating.
Risk warning: There is a risk that raw material prices will fluctuate, and the pace of new production capacity investment will fall short of expectations.