Earnings improved quarterly in 2023. In 2023, the company achieved operating income of 46.142 billion yuan, -5.95% year-on-year; realized net profit of 70 million yuan, -86.72% year-on-year. The company's profit gradually improved in a single quarter. 1Q23-4Q23 achieved net profit attributable to mother of -498 million yuan, -178 million yuan, 283 million yuan, and 462 million yuan respectively. The company plans to distribute a cash dividend of 0.14 yuan (tax included) for every 10 shares to all shareholders.

Production and sales of major products increased steadily. In 2023, the company's production and sales volume in the petrochemical sector was 558.67 million tons, respectively, up 4.26%/4.97% year on year; the fertilizer sector's production and sales volume was 126.83/1.2617 million tons, respectively, up 14.05%/13.57% year on year.

Product gross profit declined overall. In 2023, the average price decline of the company's main chemical products was higher than the decline in crude oil processing costs. The product price spread was still low, and profit margins narrowed. Looking at major sectors, the (1) petrochemical sector had gross profit of 6.216 billion yuan in 2023, a year-on-year decrease of 634 million yuan (-9.3%), but overall it is still at a high level. Among them, the gross profit margin of crude oil processing, petroleum products, and aromatic hydrocarbons declined slightly, and losses on polyolefin products decreased slightly. (2) In the fine chemicals sector, gross profit in 2023 was 0.29 million yuan, a year-on-year decrease of 158 million yuan (-84.5%). Apart from a slight increase in butadiene gross profit, the gross profit of ABS products and by-products, ethylene oxide, and ethylene glycol products all declined to varying degrees. (3) In the fertilizer sector, gross profit in 2023 was 567 million yuan, a year-on-year decrease of 481 million yuan (-45.9%), mainly affected by the decline in urea profits.

The Group and Saudi Aramco jointly built a major refining and chemical project. Construction of fine chemical and raw materials engineering projects jointly invested by the company's major shareholder Northeast Huajin Group, Saudi Aramco and Panjin Xincheng Group has officially started construction (North Huajin holds 51% of the shares and Saudi Aramco holds 30% of the shares). According to Aramco Asia's official account, the project includes a 300,000 b/d refinery (15 million tons/year) and a 1.65 million tons/year steam cracking unit, which is expected to be fully operational by 2026.

Profit forecasting and investment ratings. We expect the company's EPS in 2024-2026 to be 0.23, 0.27, and 0.31 yuan, respectively, and 9.08 yuan for BPS in 2024. Referring to the valuation level of comparable companies, they were given 0.8-1.0 times PB in 2024, corresponding to a reasonable value range of 7.26-9.08 yuan (corresponding to 32-39 times PE in 2024), maintaining a “superior to market” rating.

Risk warning: falling international crude oil prices, falling profits from petrochemical products falling short of expectations, etc.