The high rate of return of stock private refining is expected to become the norm. We believe that the reasons why private refining can maintain a high rate of return are as follows: 1 The radical transformation of overseas petrochemical giants has led to a significant decline in capital expenditure, leaving a supply gap. However, the demand shift can not keep up with the supply shift. It is generally predicted that the global demand for refined oil will peak in the middle and late 1920s, and the demand for chemicals will continue to grow until 2050. Therefore, we are optimistic about the long-term prosperity of large refining and chemical industry; 2. In order to solve the problem of carbon emission, the new large-scale refining and chemical projects in the future will probably need to be equipped with CCUs or use renewable energy, which will inevitably lead to an increase in cost. Taking hydrogen production as an example, if green hydrogen is used in new large-scale refining and chemical projects in the future, the cost is bound to rise sharply.
Enter downstream new materials to open growth. The market generally believes that the extension of large refining and chemical enterprises to the downstream field of new materials is a helpless move when the upstream cannot expand production. However, we believe that extending downstream is an inevitable choice for large refining and chemical enterprises after the cost of various production factors rises in the mature stage of industrialization. In the past, the low cost of production factors such as labor, energy and land stimulated enterprises to prefer the extensive expansion mode of high energy consumption and low added value rather than paying attention to technology investment. However, when the prices of various factors of production begin to rise, enterprises’ investment in technology will increase, so as to improve total factor productivity. In addition, Rongsheng and Hengli, two major refining and chemical enterprises, originally fought from the highly competitive polyester industry, have now entered the fully competitive new material industry. With the accumulated advantages in capital, talents and management, their return on investment can still drive the enterprise to achieve effective growth. Taking Hengli’s investment in the field of new materials of about 50 billion as an example, according to the calculation of 13% ROA, it is expected to bring a profit increment of 6.5 billion.
The approval of large refining and chemical projects is expected to be relaxed. Our judgment on the marginal relaxation of the approval of large refining and chemical projects comes from two points: 1 The realization path of “double carbon” goal is gradually clarified, and there are laws to follow for project approval. The Ministry of industry and information technology has successively issued the “14th five year plan” for industrial green development and the “14th five year plan” for raw material industry development, pointing out the implementation path of carbon peak in petrochemical and chemical industry. In addition, the 2021 central economic work conference proposed that “raw material energy consumption will not be included in the total energy consumption control”, and the raw material energy consumption of the petroleum and chemical industry accounts for 70% of the total raw material energy consumption in China, removing the raw material energy consumption from the total energy consumption control, increasing the possibility of approval of some incremental projects in the industry; 2. Under the pressure of steady growth, “new infrastructure” is an important means of steady growth, and the investment in large refining and chemical projects is huge. Moreover, the import dependence of basic chemicals such as ethylene is still 37.6%, and the new production capacity can be digested.
Investment proposal and investment object
In 2021, due to the tightened approval of major refining and chemical projects, the stock prices of major refining and chemical companies experienced a sharp decline, corresponding to less than 10 times the valuation in 2022. At the current time node, the approval of large refining and chemical projects is expected to be relaxed, and Rongsheng Petro Chemical Co.Ltd(002493) and Hengli Petrochemical Co.Ltd(600346) have tens of billions of capital expenditure in the field of downstream new materials, reopening the growth space. In addition, the radical transformation of overseas refining and chemical enterprises has left a supply gap, which makes us confident in the prosperity of large refining and chemical enterprises in 2022. It is recommended to pay attention to the investment opportunities of Rongsheng Petro Chemical Co.Ltd(002493) (002493, buy), Hengli Petrochemical Co.Ltd(600346) (600346, buy), Tongkun Group Co.Ltd(601233) (601233, buy).
Risk tips
Crude oil prices fluctuate sharply; The demand is less than expected; The approval of large-scale refining and chemical projects is still tightened; The progress of new material project is less than expected; Changes in assumptions affect the calculation results
