Per AI Express, on January 2, 2024, Dongfang** released a research report commenting on Rongsheng Petrochemical (002493).
Key takeaways. New material projects open up the product space. After the second phase of Zhejiang Petrochemical was put into operation, Rongsheng planned a number of new material projects, including 1.4 million tons of ethylene and downstream chemical plant projects with Zhejiang Petrochemical as the main body, high-end new material projects, high-performance resin projects, as well as Jintang new material projects planned through the establishment of wholly-owned subsidiaries and Taizhou high-end new chemical materials projects with an annual output of 10 million tons. Rongsheng actively adopts the new technology independently developed in China, and at the same time opens up its own product space, it also provides an application platform for domestic technology and contributes to the progress of the domestic chemical industry. Zhejiang Petrochemical Co., Ltd. and Rongsheng New Materials (Taizhou) have both planned carbon dioxide reforming projects, breaking through the raw material restrictions of coal-to-syngas in refineries and expanding the industrial chain. Rongsheng also plans POE, PCT, PCTG, PETG, COC, COP and other new material products that are currently in a highly import-dependent stage, which are expected to bring excess benefits to Rongsheng after they are put into production.
Strengthen integration and improve profitability. Zhejiang Petrochemical has built an integrated logistics system and planned a number of storage and transportation projects. The Jintang storage and transportation base project includes three parts: wharf, tank farm and pipeline, and is expected to be completed in 2025. After the completion of the project, Zhejiang Petrochemical will form a "Jintang-Zhangzi-Mamu-Yushan" transportation route, which will significantly improve the stability of Zhoushan Green Petrochemical Base. The Zhoushan-Ningbo Petrochemical Base Interconnection Pipeline Project and the Zhoushan-Ningbo-Shaoxing Oil Products Pipeline Project can realize the interconnection between Zhejiang Petrochemical and CICC Petrochemical, which are subsidiaries of Rongsheng. Under the assumption of a 50% debt ratio, we calculate that the two projects can increase the annual growth of Zhejiang Petrochemical by 50 billion net profit, ROE of 223%。Zhejiang Petrochemical has also planned the Daishan Yushan Power Plant project to build a 2 660MW ultra-supercritical unit, which is scheduled to be put into operation at the end of the 14th Five-Year Plan. Ultra-supercritical generator sets have higher thermal efficiency than subcritical and supercritical units, which can save coal and reduce greenhouse gas emissions. Under the assumption of a 50% debt ratio, we estimate that the Daishan Yushan Power Plant project can increase the net profit of Zhejiang Petrochemical by 79.4 billion yuan, corresponding to a ROE of 265%。In addition, Rongsheng also continues to build an integrated industrial chain from the first to the new material, so that the downstream products have cost advantages. Among the new material projects, ABS production capacity is the largest, and after the new project is put into operation, the total production capacity of Rongsheng ABS will reach 2.8 million tons. We estimate that in the future, Zhejiang Petrochemical and Rongsheng New Materials (Jintang) will be at the left end of the cost curve of the ABS industry.
Profit** & Investment Advice.
Our company's earnings per share from 2023 to 2025 are$11. We use a historical valuation approach based on the company's average PB (TTM) over the past 5 years36. Considering the bottom of the industry's prosperity and the expected ROE level is lower than the historical level, a 20% discount will be given, and the net assets per share will be 4 in 23 years$65 corresponds to a target price of 1314 yuan, maintain ** rating.
Risk Warning. **Fluctuations;Refined oil spreads contracted;Chemical spreads contracted;The commissioning of new projects is less than expected;Assumptions that change in conditions affect the calculation results.
*: Huibo Investment Research).
Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Do so at your own risk.
Edited by Zhao Qiao).
National Business Daily.