Incident: The company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 108.3 billion yuan, +5% year-on-year; realized net profit to mother -1.4 billion yuan, or -156% year-on-year. Among them, Q3 achieved revenue of 35.5 billion yuan in a single quarter, -6% year-on-year and -2% month-on-month; realized net profit to mother -1.7 billion yuan, -2.54 billion yuan year-on-year, and -1.81 billion yuan month-on-month.

Comment:

Oil prices fell, and inventory losses were large, and 24Q3 performance declined under pressure. Oil prices fluctuated widely in 24Q3. International oil prices fell rapidly in September due to factors such as the easing of geopolitics in the Middle East and declining crude oil demand expectations. In Q3 2024, the average price of Brent crude oil was 79 US dollars/barrel, -8% year over month; naphtha cracking price difference - 66 US dollars/ton, year on year +41 US dollars/ton, + 4 US dollars/ton month on month; refining price difference: 800 yuan/ton, year on year +126 yuan/ton, month on month + 109 yuan/ton; PX price difference of 660 yuan/ton, year on year - 801 yuan/ton; PTA price difference of 384 yuan/ton, yoy +125/ton, month-on-month Per ton; polyester silk DTY price difference of 2,529 yuan/ton, +72 yuan/ton year on year, +242 month-on-month Yuan/ton.

The drop in oil prices caused large short-term inventory losses. Combined with the decline in the aromatic hydrocarbon economy, the price spread fell sharply, and the company's 24Q3 performance fell sharply under pressure. As oil prices gradually stabilize, the company's Q4 performance is expected to improve significantly month-on-month.

The refining and chemical project has been fully put into operation, and the company's core competitiveness continues to increase: in the refining and chemical sector, the production capacity of the company's integrated refining and chemical project has been fully released. The project has a crude oil processing capacity of 16 million tons/year, an aromatic hydrocarbon joint plant scale of 2.8 million tons/year, and an ethylene cracking plant scale of 1.1 million tons/year. The company has achieved a full industry chain layout “from a drop of oil to a wire”. In the polyester chemical fiber sector, as of Q3 '24, the company had an annual production capacity of 3.55 million tons of polyester filament, with a differentiation rate of over 90%, mainly for high-end products DTY. The company has a high collaborative development advantage. The refining, polyester and new energy materials sectors are fully linked to jointly develop high-performance, high-value-added materials and their modified applications, providing broad possibilities for further downstream collaborative extension of the industrial chain.

The POSM and polyol projects were successfully put into operation, deepening the “1+N” industry chain layout: As of November '24, the company's two POSM and polyol plants were all successfully put into operation, running smoothly and producing qualified products. With a total investment of 5.6 billion yuan, the POSM and polyol project uses the most advanced and mature cleaning and processing technology to minimize pollutant emissions. Relying on benzene, hydrogen, ethylene and propylene as raw materials for integrated refining and chemical projects, it is possible to produce 0.2 million tons of propylene oxide, 0.45 million tons of styrene, 0.115 million tons of polyether polyols and 0.025 million tons of polymer polyols per year through the “propylene - epoxy - polyether polyol” industrial chain. The successful commissioning of the project effectively extends the vertical integration of refining and chemical industry chain, fully explores the depth of the downstream industry of benzene, C2, C3 and other products, further enhances the company's overall competitiveness, and provides a more stable supply of raw materials for the domestic polyurethane industry, and strongly promotes the healthy development of the polyurethane industry.

Profit forecast, valuation and rating: Considering falling oil prices, declining aromatic hydrocarbon sentiment, and the company's profitability is falling under pressure, we lowered the company's profit forecast for 2024-2026. We expect the company's net profit to be -9.63 (4.7 billion yuan) /26.31 (48% reduction) /41.32 (34% reduction) billion yuan, respectively. The corresponding EPS is -0.15/0.40/0.63 yuan. The company's major refining and chemical project has been fully put into operation, and the new materials project is progressing steadily, and there is plenty of room for growth. Affected by short-term fluctuations in oil prices, the company's profitability fluctuates greatly, but we are still optimistic about the medium- to long-term profitability of the company's refining and new materials production capacity, so we maintain the company's “buy” rating.

Risk warning: The progress of new production capacity investment falls short of expectations, global economic recovery falls short of expectations, and international crude oil prices fluctuate.