Description of the event

On the evening of August 30, Sinochem International released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 25.861 billion yuan, -10.89%; realized net profit attributable to mother 0.012 billion yuan, or 107.51% year-on-year; realized net profit without return to mother of -0.825 billion yuan, or -46.84% year-on-year. Among them, the company achieved revenue of 14.245 billion yuan in the second quarter, -7.11% year-on-year, +22.62% month-on-month; net profit to mother of 0.298 billion yuan, +207.65% year-on-year, reversing losses month-on-month; after deducting non-net profit of 4.84 yuan, +4.40% year-on-year and -41.73% month-on-month.

The epoxy resin industry chain is sluggish, and profits continued to be under pressure in the second quarter

Overall profits of core products continued to be under pressure in the second quarter. 2024Q2 saw a significant improvement in the company's return profit. It was mainly a non-recurring profit and loss of 0.84 billion yuan and a government subsidy of 0.138 billion yuan from the Sinochem International Plaza Green Asset Support Project. At the business level, the poor recovery in overall domestic demand has led to a significant drop in prices and gross margins of major products. In particular, products such as the C3 industry chain, epoxy resin industry chain, and anti-aging agents are under pressure due to high supply growth and sluggish demand. According to the operating data disclosed by the company, the sales unit price of chlorobenzene/chlor-alkali/resin/rubber anti-aging agents in the second quarter was +4.93%/-4.76%/-2.09%/+0.58%, respectively, and -2.62%/+4.04%/-7.99%/-18.86% month-on-month. Apart from the month-on-month increase in the price of chlor-alkali products, the rest of the products were bottomed out. The consolidated gross margin for the second quarter was 2.60%, -1.46pct/-1.06pct yoy.

New projects have climbed the slope one after another, and their market share has further increased. In the second quarter, product price reductions and the release of new projects led to a significant increase in the company's production and sales volume from month to month. The total product production/sales volume in a single quarter reached 0.557/0.3843 million tons respectively, +37%/+26% year over year, and +26%/+34% month over month, both achieving significant increases from month to month. In a relatively difficult market environment, the company compensates with volume to increase market share.

Focus on building a “2+2” core industrial chain, and have abundant reserves of projects under construction

The company focuses on the two major industrial chains of epoxy resins and polymer additives, consolidates its position in the industry, builds the world's leading industrial chain and solution supplier, and vigorously develops the engineering plastics and special fiber industry chain, covering intermediates to engineering plastics/fibers and material modifications to create a differentiated product portfolio. In 2023, the company's Lianyungang carbon 3 industry chain project was fully completed, the foundation of the carbon 3 industry chain was achieved, and new material varieties such as nylon 66 and aramid were developed to enrich the product matrix. According to the company's semi-annual report, the 0.04 million tons/year nylon 66 and 0.025 million tons/year intermediate J project at Zhongwei base operated steadily, and the products were approved by customers. The company's 0.08 million tons/year nylon 66 and 0.05 million tons/year intermediate expansion project is in progress. It is planned to further enhance product market influence and profitability through bottleneck removal and product portfolio optimization. The company's 5,000 tons/year counteraramid production has undergone phased commissioning since it was completed and put into operation in 2020, and has now achieved full load operation, leading the domestic market share in other high-end markets such as safety protection and optical cable reinforcement. The company is steadily promoting the expansion of 2,500 tons/year of aramid The project and downstream supporting projects further enhance the company's overall competitiveness; on the deep foundation of the rubber anti-aging agent industry, the company relies on independent innovation to lay out the accelerator industry, and the Lianyungang accelerator project has now been handed over.

Investment advice

We expect that in 2024-2026, the company will achieve net profit of 0.229, 0.506, and 0.796 billion yuan, respectively, and the corresponding PE is 59.92, 27.15, and 17.28 times, respectively, maintaining the “increase” rating.

Risk warning

(1) Risks caused by price fluctuations of raw materials and major products; (2) production safety risks;

(3) Environmental protection risks;

(4) Project commissioning progress falls short of expectations;

(5) Macroeconomic downturn.