Incident 1: On March 21, the company released its 23-year annual report, achieving annual revenue of 29.136 billion yuan, +2.48% year on year; net profit of 5.651 billion yuan, -10.34% year on year; net profit without return to mother of 5.949 billion yuan, -11.46% year on year; of these, Q4 achieved revenue of 8.735 billion yuan, +25.77% year on month, +19.48% month on month; net profit to mother of 1,760 billion yuan, +7.70% month-on-month, net profit not attributable to mother of 1.803 billion yuan, year-on-year Ratio +5.45 %.

Incident 2: On April 25, the company released its quarterly report for '24. In 24Q1, it achieved revenue of 8.227 billion yuan, +22.19% year over month; net profit to mother of 1,421 billion yuan, +19.89% year on month, -19.26% month on month; net profit without return to mother was 1,482 billion yuan, +15.79% year over month, and -17.82% month over month.

Olefins: Price compensation increased year-on-year, and the economy is expected to continue to improve. For the full year of 2023, the company achieved revenue of 59.0/5.09 billion yuan, +12.2%/+4.3% year-on-year; in the 2024 Q1 single quarter, revenue of 20.4/1.75 billion yuan, -1.75 billion yuan, -1.3%/-3.7%. Specifically: In terms of production and sales, the annual production of polyethylene/polypropylene in 2023 was 84.0/749,000 tons, +18.8%/+12.5%; sales volume was 83.3/753,000 tons, +18.2%/+14.1%; Q1 Q1 single-season polyethylene/polypropylene production was 287/274,000 tons, -1.0%/+8.2% month-on-month; sales volumes were 29.5/268,000 tons, flat/-0.4% month-on-month, with Ningdong Phase III investment in September 23. A new level. In terms of price, according to Wind, the average price of polyethylene/polypropylene for the full year of 2023 was 8102/7545 yuan/ton, -3.6%/-8.8% year-on-year; the average price for Q1 in 2024 was 8192/7369 yuan/ton, +1.4%/-2.3% month-on-month. In terms of price spread, the price difference for polyethylene and polypropylene for the full year of 2023 was 3524/2967 yuan/ton, respectively, +20.2%/+6.0%; the 2024 Q1 price difference was 4023/3200 yuan/ton, respectively, +13.3%/+5.9% month-on-month. Coal prices fell slightly from the end of 2023, and olefin profits recovered.

Overall, the recovery in olefin terminal demand in 2023 fell short of expectations, product prices weakened year-on-year, and the company put into production phase III in Ningdong to achieve positive growth in the performance of the olefin sector through volume compensation. Looking ahead to 2024, demand for olefins is expected to continue to improve under the dual effects of overseas interest rate cuts and the continued strengthening of domestic macro-control policies. At the same time, the widening kerosene price spread will also bring sufficient profit flexibility for coal-to-olefin.

Coke: Profits in the coke market are under pressure, and molten iron may recover. The company's coke sector achieved revenue of 10.98 billion yuan in 2023, -13.4% year-on-year; Q1 achieved revenue of 2.68 billion yuan in a single quarter in 2024, or -11.0% month-on-month. Let's take a closer look:

In terms of production and sales, coke production and sales for the full year of 2023 were 6.98.0 and 6.976 million tons, respectively, +11.7% and +12.3% year-on-year; production and sales volumes for the Q1 quarter in 2024 were 171.9 and 1.75 million tons, respectively, -4.9% and -2.2% month-on-month.

In terms of price, according to Wind, coke was 2,450 yuan/ton for the full year of 2023, -20.4% year-on-year; 2,330 yuan/ton for the 2024 Q1 season, -8.0% month-on-month. In terms of price differences, the price difference of coke for the full year of 2023 was 165 yuan/ton, or -43.2% year on year; the 2024 Q1 single quarter was -4 yuan/ton, which was at a loss. According to Wind, the operating rate of 247 blast furnaces in China fell 4.0 pct month-on-month in Q1 in 2024, and average daily iron and water production fell 137,000 tons month-on-month. Coke market profits are under pressure due to the double adverse effects of rising costs and sluggish demand. Recently, with the gradual increase in iron and water production in steel mills and after May 1st, coke companies will carry out a fourth round of price increases, profits may recover. In the long run, as Shanxi gradually phases out the production capacity of 4.3 meters or less of coke ovens, the coke supply-side pattern is expected to continue to be optimized.

The first phase of Inner Mongolia progressed in an orderly manner, and the release and growth of production capacity was prominent. The company has two major bases in Ningdong, Ningxia and Ordos, Inner Mongolia, to establish a “coal-coke-olefin” integrated industrial chain. In terms of olefin, the Ningdong Phase III 400,000 tons/year polyethylene and 500,000 tons/year polypropylene plant was completed and put into operation in September 2023. The first phase in Inner Mongolia is progressing smoothly according to plan, and 3 million tons of olefin is expected to be put into operation in 2024. In terms of coke, the company's six dry coke quenching projects have all been put into operation. All coke products have been converted from wet coke quenching to dry coking, which is expected to better meet the needs of downstream steel companies and coking companies. In terms of coal mining, the company added 400,000 tons/year to the production capacity of the Maliantai coal mine and 600,000 tons/year, and the Dingjialiang coal mine is expected to be put into operation in 2024. In addition, it also owns 40% of Ningxia Hongdunzi Coal Co., Ltd. and the coal mine equity production capacity is 1.92 million tons. Currently, the company's cumulative coal mine equity production capacity has reached 1.02 million tons. In addition, projects such as 200,000 tons/year of styrene and 250,000 tons/year of EVA have been completed and put into operation, further enriching the company's product matrix. The company has sufficient growth momentum. In the future, with the first phase of production in Inner Mongolia, profits are expected to rise.

Profit forecast and investment advice: The company is a leading domestic coal chemical enterprise, leading the world in the scale of coal-to-olefin. With the release of production capacity in Inner Mongolia in the first phase, we adjusted the company's profit forecast. Due to fluctuations in product prices, we adjusted the company's profit forecast. The net profit for 2024-2026 is estimated to be 87.73/139.88/14.758 billion yuan (originally 2024-2025 was 100.62/14.722 billion yuan). The corresponding PE is 14.20/8.91/8.44 times (corresponding to the closing price of 2024/5/17), and maintained “Buy” rating.

Risk warning: oil prices fluctuate; product prices fluctuate greatly; downstream demand falls short of expectations; project commissioning falls short of expectations; untimely information updates, etc.