Performance review
1Q22 performance is lower than we expected.
The company announced 1Q22 results: revenue of 26.01 billion yuan, an increase of 28% over the same period last year; net profit of 210 million yuan, down 82% from the same period last year, lower than we and the market expected.
We believe that the sharp decline in 1Q22's performance compared with the same period last year is mainly due to: 1) the sharp rise in international oil prices, and the company's crude oil processing costs increased by about 56% compared with the same period last year. 2) due to the domestic epidemic, especially in eastern China, the demand for refined oil and chemicals is sluggish, and the increase in product sales prices is significantly lower than the increase in crude oil costs. 3) since March this year, poor production and sales of major products have led to a slight decline in plant operating rate.
Trend of development
The operating pressure of 2Q22 is still there. Considering that 1Q22's refining sector has benefited from inventory gains brought by rising crude oil prices, looking forward to 2Q22, we expect international oil prices to remain high and volatility, and inventory benefits may be significantly narrowed; on the other hand, the company's chemical sector has been under greater operating pressure since 1Q22, and short-term pressure may continue in the context of high oil prices and weak demand.
The overhaul of the 2Q22 plant may further drag down the overall operating rate. According to the company's plan at the beginning of the year, a planned overhaul of an atmospheric and vacuum unit will be carried out from May to June, which may lead to a further decline in the overall plant operating rate of less than 40%. We believe that the decline in processing volume and the increase in costs caused by planned maintenance may put pressure on 2Q22's performance.
The production line of large tow carbon fiber may be a bright spot. According to the official Wechat of Sinopec, the 12000-ton large tow carbon fiber production line under construction is expected to be put into production in stages by the end of 2022 and the end of 2024, and we expect to bring large incremental profits to the company in the next 2-3 years. The company is an enterprise with a complete set of production technology of large tow carbon fiber in China, and the product quality is highly recognized in the industry.
Profit forecast and valuation
Taking into account the possible decline in the operating rate brought about by the overhaul of 2Q22, we reduce the net profit in 2022 by 30% to 1.9 billion yuan, leaving the profit forecast basically unchanged in 2023. Taking into account the cost increase caused by the possible high oil price in the future, we reduce the target price of 25x/10x H by 10% to 4.50 yuan / 2.10 Hong Kong dollars, corresponding to the price-to-earnings ratio of 25x/10x 2022 and 15x/6x 2023 and the upside space of 48% action 45%. Maintain the "outperform industry" rating of Agamot H shares. A Big H shares are currently traded on 17x/7x 2022 and 10x/4x 2023 price-to-earnings ratios.
Risk.
International oil prices fluctuated sharply, and the promotion of carbon fiber projects fell short of expectations.