Dongfang Shenghong (000301): Q4 Performance Exceeds Expectations, Refining and Chemical Integration Opens Growth Space

Event: The company released its 2018 annual report, reporting that a series of companies achieved operating income of 184.

40 ppm, an increase of 13 in ten years.

13%, achieving net profit attributable to shareholders of listed companies.

47 trillion, down 40 a year.

75%; Realize net profit attributable to listed companies after deduction.

1.7 billion, down 30 a year.

46%, achieving EPS 0.

26 yuan; of which Q4 company achieved operating income of 50.

420,000 yuan, achieving net profit attributable to listed companies1.

8.5 billion yuan.

Comments: 1. Profit decreased due to impairment, Q4 earnings exceeded expectations. The company completed a major asset reorganization on August 31, 2018, and injected Guowang Hi-Tech polyester filament assets. This major asset restructuring constitutes a reverse purchase.Gaoke became the buyer of accounting. The business of the original listed company was merged into Guowang Hi-Tech’s financial statements on September 1, 2018. The same period last year was the financial statement of Guowang Hi-tech.

The company achieved operating income of 184 in 2018.

40,000 yuan, an increase of 13 in ten years.

1杭州夜网论坛3%, the company’s revenue growth mainly benefited from the rise in polyester filament prices.

In 2018, the company’s polyester filament sales were 154.

19 is the earliest, falling by 4 every year.

25%. According to our statistics, the prices of polyester filament POY, FDY and DTY respectively increased by 13 in 2018.

75%, 12.

67% and 11.

65%.

The company achieved net profit attributable to shareholders of listed companies in 20188.

47 trillion, down 40 a year.

75%; Realize net profit attributable to listed companies after deduction.

1.7 billion, down 30 a year.

46%; the company’s profit is mainly due to the company’s Q3 accrual of 5 in the short term.

A provision for impairment of 99 million goodwill was made.

The loss of impairment of intangible assets of USD 0 billion was formed as a result of the reorganization of the reverse acquisition of assets. The company accrued the impairment of this goodwill in the long-term and stable development concept.

According to the reported quantity, Guowang Hi-Tech achieved a net profit of 14.

56 ppm, an increase of ten years.

88%.

Q4 company achieved operating income of 50.

420,000 yuan, achieving net profit attributable to listed companies1.

85 million US dollars, a significant integration of other listed companies in the same industry, mainly the company’s polyester filament mainly DTY, while the Q4 DTY spread narrowed, the POY spread narrowed most significantly, and the company mainly differentiated products, The price is relatively firm; most of the company’s Q4 earnings were mainly affected by the decline in inventory prices.

The company’s overall gross profit margin in 2018 was 13.

8%, of which the overall gross profit margin of the polyester filament business is 13.
.

43%, down by 1 every year.

4pct, where the gross margins of POY, FDY and DTY are 11 respectively.
47%, 15.
62% and 14.

34%, increasing by 0 each year.

06pct, down 2.

72pct and drop by 1.

54 points.

In the reporting year, the company’s three fees basically remained stable. In 2018, the company’s financial expenses and management expenses decreased.

16% and 8.

51%, sales expenses increased by 12.

96%.

Company R & D expenses in 2018 2.

50,000 yuan, an increase of 30 in ten years.

45%.

2. Inject Shenghong Refining and Chemicals, improve the integration of the industrial chain, and open up future growth space.

On March 9, 2019, Jiangsu Shenghong Petrochemical, a wholly-owned subsidiary of the company, acquired Shenghong Suzhou in cash, and Shenghong Petrochemical held a total of 100% equity of Shenghong Refining and Chemicals at a transaction price of 10.

1.1 billion.

After the transaction is completed, the company owns 100% of Shenghong Refining and Chemical.

Shenghong Refinery was established in July 2014, and officially started the “Shenghong 1600-ton / year integrated refining and chemical integration project” on December 14, 2018. The project is expected to have a total investment of about 77.5 billion yuan and a designed crude oil processing capacity of 1600 tons / year., PX 280 forecast / year, ethylene decomposition unit 110 adjustment / year. According to the “Shenghong Refining and Chemical Integration Project Feasibility Study Report”, it is estimated that the project will have sales revenue of approximately 77.2 billion and a net profit of approximately 76 billion.
The company expects Shenghong Refining & Chemical to start production by the end of 2021.

The injection of Shenghong Refining and Chemicals opened a new chapter in the company’s growth. In the future, the company will replace polyester filaments to expand into the oil refining and refining and chemical fields, forming a complete industry chain of “crude oil-PX-PTA, MEG-polyester-chemical fiber”, and the company’s industryThe initial integration of the chain further enhances the company’s profitability and core competitiveness; it improves the situation in which solutions PX and MEG rely on imports for a long time, at the same time opens up the industrial chain of crude oil refining and high-end chemicals, and improves the domestic refining capacity structure, Is conducive to promoting the gradual upgrading of the refining and chemical industry.

The injection of Shenghong Refinery is the beginning of the company’s capital operation. Honggang Petrochemical, a subsidiary of Shenghong Group, has a 150-ton PTA capacity, and 220-ton / year PTA capacity is under construction. It is related to the company’s current polyester filament and the future of Shenghong Refinery.PX belongs to the upstream and downstream of the industrial chain, and there are expected related party transactions. When the company was reorganized, the actual controller of the company made it clear that in order to completely solve the problem of Guowang Hi-Tech’s PTA related procurement, the company promised to belong to the parent company after the audit of Honggang Petrochemical CompanyUnder the condition that the net profit of the owner is positive and meets the relevant laws and regulations, the work of injecting Honggang Petrochemical into the listed company as a whole will be started within one year.

The PTA industry is more profitable in 2018. We estimate that Honggang Petrochemical should theoretically be profitable, so we expect that the injection of Honggang Petrochemical may only be a matter of time.

3. The company ‘s polyester filament production capacity continued to expand, and the DTY market segment was further diversified. Hongkong Fiber 20 Polyester Polyester Spinning was put into production. The company currently has 206 monomer production capacity, of which POY output is 151 (partially used to produce DTY).FDY production capacity is 36 injections, slicing production capacity is 19 sizes, and DTY production capacity is 96 destinations (DTY production capacity will increase to 108 after the Honghong Chemical Fiber 12 inserts the texturing part into operation).

With the further expansion of the company’s polyester filament production capacity and further optimization of the product structure, profitability will steadily increase.

The company’s filament sales are mainly DTY. For many years, the company’s DTY market share has been the first. DTY is generally sold directly to downstream weaving mills. Compared with POY, its customers are more sticky.

The company’s DTY products are mainly differentiated and deeply cultivated in differentiated markets such as fine denier, cationic and full extinction. Therefore, the number of DTY products of the company is much higher than ordinary products in the market, and its profitability is strong.

4. The investment proposal follows the plan. Shenghong Refining is expected to start production by the end of 2021. Therefore, we will not consider the impact of Shenghong Refining on the company’s profit for the time being. It is expected that 2019?
The company’s net profit will be 14 in 2021.

33, 15.

91 and 18.

08,000 yuan, corresponding to 0 EPS.

36, 0.

39, 0.

45 yuan, currently expected 6.

08 yuan, the corresponding PE is 17 respectively.

1, 15.

4 and 13.

6 times, considering the company’s future PTA asset injection and the performance improvement brought by Shenghong Refining & Chemical Co., Ltd., maintain “Highly Recommended-A” rating and target price of 6.

3?
6.
8 yuan.

5. Risk warnings (1) The downstream demand growth of polyester filaments has decreased, and the spread has narrowed; (2) The upstream raw materials PTA and MEG have increased too much, compressing the profit margins of polyester filaments; (3) Shenghong Refining & Chemical’s production progress has been less than expected