Event: since March, private refining and chemical enterprises have issued plans to repurchase shares, among which Rongsheng Petro Chemical Co.Ltd(002493) announced that the planned repurchase amount is no less than 1 billion yuan and no more than 2 billion yuan, Tongkun Group Co.Ltd(601233) planned repurchase amount is no less than 500 million yuan and no more than 1 billion yuan, Hengli Petrochemical Co.Ltd(600346) planned repurchase amount is no less than 1 billion yuan and no more than 1.5 billion yuan. In addition, Hengyi Petrochemical Co.Ltd(000703) has announced on October 27, 2021 that the planned repurchase amount is no less than RMB 500 million and no more than RMB 1 billion.
Impacted by the sharp rise in crude oil prices, the share price of private refining enterprises has been adjusted greatly recently.
Since December 2021, affected by tight supply, the international oil price has continued to rise and gradually stood in the high oil price range of more than $90 / barrel. Since the end of February, the impact of the conflict between Russia and Ukraine has further exacerbated the tense situation of international crude oil supply, driving the oil price to further rise to more than $100 / barrel. WTI crude oil once rose to $130.5/barrel, and Brent oil price once rose to a high of $139.13/barrel, a high since 2008. Affected by the rise in oil prices, the share prices of private refining and petrochemical enterprises have adjusted significantly since late February. As of March 21, Rongsheng Petro Chemical Co.Ltd(002493) , Hengli Petrochemical Co.Ltd(600346) , Tongkun Group Co.Ltd(601233) , Hengyi Petrochemical Co.Ltd(000703) fell 23.82%, 16.83%, 22.81% and 18.12% respectively compared with the closing price on February 21, significantly underperforming the market and petroleum and petrochemical index in the same period. Over the same period, the CSI 300 index and CITIC petroleum and petrochemical index fell 8.10% and 10.73% respectively.
High oil prices do not affect the long-term investment value of refining and chemical enterprises.
Generally speaking, when the crude oil price is in the range of $40-80, the profitability of refining and chemical enterprises is in an ideal state. With crude oil entering the stage of high oil price, the market began to worry about the profits of refining and chemical enterprises. The impact of high oil prices on the profits of refining and chemical enterprises is mainly reflected in the following aspects: on the one hand, due to the existence of the “ceiling” price in China’s refined oil pricing mechanism, when the oil price is higher than the ceiling price of US $130 / barrel, China’s refined oil price adjustment will no longer completely follow the oil price adjustment, so the excessively high oil price will suppress the profits of refined oil business; On the other hand, the high oil price also suppresses the demand for chemical products. As the current round of crude oil price rise is driven by the supply side rather than the demand side, the supply-demand relationship of chemical products business may deteriorate. In addition, if the oil price goes down at a high level in the future, it will bring inventory falling price losses to the inventory of refining and chemical enterprises. Therefore, under the influence of many factors, the short-term performance of refining and chemical enterprises may be impacted to some extent.
For refining and chemical enterprises, their raw materials are crude oil, and their products are refined oil and various chemical products. In the long run, the profit of refining and chemical enterprises depends on the price difference between crude oil and its products, and the price difference depends on the relationship between supply and demand of the industry. From the perspective of supply and demand of the refining and chemical industry, under the target consensus of global carbon emission reduction, the increment of global refining and chemical capacity will be limited in the future. China’s action plan for reaching the carbon peak before 2030 clearly puts forward that China’s primary crude oil processing capacity will be controlled within 1 billion tons by 2025, an increase of only 12% compared with the existing capacity. Overseas giants are also slashing capital expenditure and gradually transforming. In terms of demand, according to the prediction from the mainstream point of view, the global demand for refined oil is expected to peak in the 1920s and still increase in the next few years. The demand for chemicals has maintained an overall growth trend with the global economic growth. Therefore, the supply and demand of the refining and chemical industry will continue to maintain a good trend in the future, and the long-term investment value will continue to increase.
Private refining and chemical enterprises have significant competitive advantages and are expected to maintain good profits.
With the advantages of scale, cost control and differentiated product structure, China’s private refining projects have achieved good profits since they were put into operation. Taking Zhejiang Petrochemical as an example, in 2020, the company realized a net profit of 11.2 billion yuan in the first year after it was put into operation, and the net interest rate and return on net assets were 17.3% and 18.23% respectively, far higher than the industry level. In the same period, Sinopec Shanghai Petrochemical Company Limited(600688) net interest rate and return on net assets were 0.86% and 2.15% respectively.
The operation time of A-share private refining and chemical units is relatively short, and they have not yet experienced the stage of high oil price. Referring to the situation of Formosa Plastics petrochemical, Formosa Plastics Petrochemical has achieved strong profitability since it completed the expansion of production in 2007 and the unit scale reached the existing 25 million tons of crude oil processing capacity. In the first half of 2008 and the first half of 2011, when oil prices rose rapidly, good profits were achieved. Only in the case of short-term sharp decline in oil prices, there were large losses in a single quarter. The continuous high oil price did suppress profits. From 2011 to 2013, the international oil price remained at the level of $110 / barrel. During this period, the profit of Formosa Plastics Petrochemical decreased, but the average annual net profit remained at the level of more than 3 billion yuan. Therefore, we expect that private refining enterprises will have a high probability of achieving a better profit in the future without a sharp rise and fall in oil prices.
Investment suggestion: affected by the rise of oil price, the share price of private refining and chemical enterprises has been adjusted greatly in the near future. However, high oil prices only affect the short-term profits of enterprises, and do not affect the investment value of private refining enterprises. In the future, private refining and chemical enterprises will have significant competitive advantages and overall profits will be guaranteed. It is suggested to actively pay attention to the investment opportunities of private refining enterprises.
Risk tip: industry demand declines and crude oil prices fluctuate sharply
