(Report Producer/Analyst: Li Hui of Zheshang Securities)
1. Cultivate and work hard to create a global polyester leader
1.1 Years of deep cultivation to create a chemical fiber faucet
Focusing on chemical fiber for more than 20 years, we have created a global polyester leader. Xinfengming was formerly known as Zhongheng Chemical Fiber, which was established in 2000 and renamed Xinfengming in 2008, and completed the share reform in the same year.
The company was successfully listed in 2017, the PTA project was put into operation in 2019, and the staple fiber project was put into operation in 2021.
As of 23H1, the company has a polyester filament production capacity of 7.4 million tons, a polyester staple fiber production capacity of 1.2 million tons, and a PTA production capacity of 5 million tons, and the polyester filament production capacity ranks among the top three in the world.
In order to improve the PTA self-sufficiency rate, the company planned a 5.4 million tons PTA project, and it is expected that the company's PTA production capacity is expected to exceed 10 million tons by 26H1, in addition, the company announced in June 23 that it intends to join hands with Tongkun Co., Ltd. to build a refining project in Indonesia, and the landing of the above projects will help the company's future growth.
1.2 Capacity expansion drives the company's revenue growth
Production capacity drives the company's revenue growth. Since its listing in 2017, the company's polyester filament production capacity has increased from 2.73 million tons to 7.4 million tons in 23H1, and the release of production capacity has driven the rapid growth of the company's revenue, from 22.963 billion yuan in 17 years to 50.787 billion yuan in 22 years, with a compound growth rate of 17.20%.
In terms of profits, affected by the prosperity of the polyester filament industry, the company has fluctuated greatly in the past 2 years, and the company's net profit attributable to the parent company in 21 years was 2.254 billion yuan, a record high, and in 22 years, affected by the rise in raw materials and the sluggish downstream demand for polyester filament, the company's main product profitability has declined sharply, with an annual loss of 205 million yuan.
In the first three quarters of 2023, polyester filament yarn continued to go to the warehouse, the company's product price spread was gradually repaired, and the single-quarter performance improved quarter-on-quarter, achieving revenue of 44.2 billion yuan and net profit attributable to the parent company of 887 million yuan in the first three quarters.
1.3 The expansion of polyester slowed down, focusing on the upstream layout
The expansion of polyester filament yarn has slowed down, and the integrated layout has been improved.
In recent years, under the large-scale capital expenditure, the company's production capacity has expanded from 2.73 million tons of polyester filament yarn at the time of listing to 7.4 million tons of polyester filament and 1.2 million tons of polyester staple fiber in 23H1.
According to the company's announcement, the domestic market share of 23H1 company's civil polyester filament yarn is 14.92%, ranking among the top three in the industry. At present, the top six polyester filament production capacity enterprises are Tongkun shares, Hengyi Group, Xinfengming, Dongfang Shenghong, Hengli Petrochemical, Rongsheng Petrochemical, of which the latter three are more conservative in the expansion of filament, but choose to upstream PTA and refining layout, Tongkun shares in 2012 PTA project trial production, in 2019 to participate in Zhejiang Petrochemical layout upstream refining.
Xinfengming's PTA project was put into operation in 2019, taking a key step in the upstream layout. In recent years, with the rapid expansion of the polyester industry, the current industry competition has gradually changed from a single link to the whole industry chain competition, the company now has polyester production capacity in the forefront of the industry, PTA production capacity of 5 million tons, in order to further strengthen the integrated layout, the company in Dushan Energy newly planned 5.4 million tons of PTA, in addition to June 23 announced that it intends to join hands with Tongkun shares in Indonesia to build a refining project, the landing of the above projects will enhance the competitiveness of the company's polyester industry chain.
2. The supply and demand pattern is optimized, and the prosperity of the industrial chain is expected to rise
2.1 With the improvement of domestic demand and the destocking of overseas, the demand for polyester filament is expected to improve
With the advantage of high cost performance, the proportion of synthetic fibers such as polyester continues to increase.
In view of the impact of natural fibers such as cotton and the environment, most of the increase in demand for fibers in terminal textiles and garments has been digested by polyester for a long time.
According to the PCI Redbook, during the period 1980-2020, the global demand for natural fibers grew at a CAGR of 1.4%, while man-made fibers such as polyester reached a CAGR of 4.2%. We believe that with the continuous improvement of the performance of polyester products, its demand is expected to continue to grow in the future.
In 22 years, the domestic terminal textile and clothing demand was under pressure, and the production and demand of polyester filament yarn in mainland China declined for the first time.
According to the statistics of China Chemical Fiber Industry Association, from 2011 to 2021, the production and demand of polyester filament yarn in mainland China continued to grow, with a compound growth rate of 8.40% in output and 8.09% in demand, and the demand has never declined in 10 years.
According to the data of the National Bureau of Statistics, the retail sales of clothing, shoes and hats, knitted textiles above designated size in 22 years decreased by 6.5% year-on-year, and the growth rate continued to be negative from March to December 22. Affected by the above, the production and demand of polyester filament yarn in mainland China declined for the first time, and the output and demand in 22 years fell by 0.2% and 1.1% year-on-year respectively.
With the improvement of domestic demand for textiles and clothing and the removal of overseas inventory, the demand for polyester filament is expected to return to growth.
In the domestic market, according to the National Bureau of Statistics, the domestic textile and apparel retail sales from January to October 23 were 1,112.6 billion yuan, a cumulative year-on-year increase of 10.2%, and the domestic demand for textile and clothing continued to improve.
From January to November 2023, the cumulative export of textile and apparel was 268.6 billion US dollars, a cumulative year-on-year decrease of 9.7%, of which textile exports were 123.4 billion US dollars, a cumulative year-on-year decrease of 9.2%; Apparel exports were 145.2 billion US dollars, a cumulative year-on-year decrease of 8.6%.
According to Wind, domestic textile and garment inventories have continued to decline in the past 23 years, with inventories of 186.8 billion yuan in September, down 2.9% year-on-year. The U.S. apparel wholesaler inventory-to-sales ratio was 2.74 in September '23, declining for 4 consecutive months from the previous month.
We believe that with the gradual depletion of overseas inventories and the improvement of domestic demand, the demand for polyester filament is expected to return to growth.
2.2 The leader is the main force of expansion, and the pace of subsequent expansion is expected to slow down
More than 70% of the world's man-made fiber supply comes from China. According to The Fiber Year, the global man-made fiber production capacity exceeded 80 million tons in 22 years, and in terms of production areas, China, India, Europe and the United States accounted for 73%, 7%, 5% and 3% respectively in 21 years, and the mainland is the main supplier of man-made fibers.
The expansion of polyester filament production is concentrated in leading enterprises, and the industry concentration continues to increase.
In recent years, in the face of strong demand, the production capacity of polyester filament has continued to increase, and according to Longzhong Petrochemical, the industry's production capacity has increased by 5.35 million tons since 2020. According to the company's announcement, the production capacity of Tongkun Co., Ltd. and Xinfengming increased from 740/5 million tons in 20 years to 960/6.3 million tons in 22 years, with a total production capacity increase of 3.5 million tons, contributing more than 65% of the industry's production capacity increase.
In addition, according to Baichuan Yingfu, affected by the poor prosperity of the industry, nearly 2 million tons of production capacity in the industry will be withdrawn in 2022-23H1, but the head enterprises still have production capacity, and the industry is becoming more and more centralized.
In this context, the concentration of polyester filament industry continues to increase, according to the announcement of various companies, 23H1 according to the group's caliber, polyester filament CR6 production capacity concentration has reached 79%.
After 23 years of centralized launch, the pace of subsequent expansion is expected to slow down.
According to the announcements of Baichuan Yingfu and various companies, it is expected that the new production capacity of the polyester filament industry in 23 and 24 years will be 4.52 million tons and 1.45 million tons respectively, and the pace of industry expansion will slow down significantly in 24 years.
In addition, according to the data of Wind and Oerlikon, from January to October 2023, the fixed investment in the mainland chemical fiber industry decreased by 9.7% year-on-year, and the orders of Barmag polyester winding heads in the first three quarters of 23 fell by about 40% year-on-year. Demand is repaired, supply expansion is slowing down, and it is expected that the supply and demand of the follow-up industry are expected to improve significantly.
2.3 The supply and demand pattern is expected to be optimized, and the profitability of polyester filament is optimistic
Under the high start and low inventory, we are optimistic about the profit recovery of polyester filament.
According to Baichuan Yingfu, the operating rate of the polyester filament industry in November 23 was 84.02%, which was at a relatively high level in the same period, and in terms of inventory, the POY inventory on December 7 was 13.6 days, down 3.6 days from mid-November, and in terms of profitability, the price difference per ton on December 7 was 1228 yuan/ton, an increase of 372 yuan/ton from mid-November.
The off-season is not light, the polyester industry is still under the high start of the inventory is still depleted, highlighting the resilience of polyester demand, with the recovery of demand next year and the slowdown of supply expansion, we are optimistic about the profitability of polyester filament.
3 Polyester boom is upward and the performance is flexible, and the Indonesian project opens up long-term growth space
3.1 Polyester profitability is expected to be restored, and the performance of industry leaders is highly elastic
The improvement of polyester supply and demand pattern is expected to restore profitability, and the company's performance as a polyester filament leader is flexible.
Since its listing in 2017, the company's production capacity has continued to expand, and the market share of its products has steadily increased. According to the company's announcement, the company's polyester filament production increased from 2.7 million tons in 2017 to 5.73 million tons in 2022, while the company's polyester filament domestic market share increased from 8.98% in 17 years to 14.45% in 22 years.
As of 23H1, the company has a polyester filament production capacity of 7.4 million tons, a polyester staple fiber production capacity of 1.2 million tons, and a PTA production capacity of 5 million tons, and the polyester filament production capacity ranks among the top three in the world. With the subsequent expansion of polyester filament slowing down, superimposed overseas textile and clothing inventory to further drive the demand for polyester filament, we believe that the profitability of polyester filament is expected to be repaired, under the existing other conditions remain unchanged, the company's profit is expected to increase by 630 million yuan for every 100 yuan per ton of polyester filament profit, and the performance is flexible.
3.2 PTA has obvious late-mover advantages, and increases production capacity to consolidate its leading position
The company's PTA cost advantage is obvious, and the cost per ton is more than 600 yuan ahead of the industry average. In 2019, the company's Dushan Energy PTA project was put into operation, and the company officially entered the PTA field, and the advanced PTA process and the large-scale scale of the device gave the company an obvious late-mover cost advantage.
According to the announcement data of Baichuan Yingfu and the company, from 2020 to 23H1, the company's PTA cost is more than 600 yuan/ton ahead of the industry average cost.
As of 23H1, the company has a PTA production capacity of 5 million tons, in order to improve the company's PTA self-sufficiency rate, the company also plans a 5.4 million tons of PTA project, and it is expected that the PTA production capacity of the company is expected to exceed 10 million tons by 26H1, and the company continues to increase production capacity to strengthen its advantages in the PTA field.
3.3 Go overseas to Indonesia to lay out refining and chemical industry and open up long-term growth space
Launched the refining and chemical project in Indonesia to strengthen the advantages of integration.
In June 2023, the company announced that it intends to cooperate with Tongkun Co., Ltd. to build a 16 million tons refining and chemical integration project of Taikun Petrochemical Co., Ltd. in North Kalimantan, Indonesia. Shanghai Qinghong and HC Semitek directly hold shares in Taikun Petrochemical, with Shanghai Qinghong accounting for 10% of the shares, HC Semitek holding 90% of the shares, and Xinfengming and Tongkun holding 49% and 51% of the shares of HC Semitek respectively.
According to the announcement, it is expected that by the end of the "14th Five-Year Plan", the two groups will have an annual production capacity of more than 20 million tons of PTA and 25 million tons of polyester filament, and the annual demand for PX will reach 13 million tons.
According to Baichuan Yingfu, with the gradual commissioning of domestic refining and chemical projects in recent years, the dependence on PX imports in mainland China has gradually declined, but it is still nearly 30% in 22 years.
The Taikun Petrochemical Project has a planned PX production capacity of 5.2 million tons, which can effectively reduce the dependence of mainland PX on the one hand, and ensure the supply of raw materials for Xinfengming and Tongkun on the other hand, and strengthen the advantages of integration.
After making a decision, the layout is long-term and the future can be expected.
At present, Xinfengming is the only polyester filament leader that has not laid out the refining project, Tongkun shares in 2017 to participate in the Zhejiang petrochemical project, this time together with Tongkun shares in Indonesia to build a refining project, we believe that to a certain extent, we can learn from the successful experience of Zhejiang petrochemical equipment, technology and operation, to help the project progress steadily.
The current project capacity is 16 million mt/year of oil refining, with a capacity of 5.2 million mt/year of paraxylene (PX) and 800,000 mt/year of ethylene. It is estimated that after the completion of the project, the average annual revenue will be US$10,438.21 million, the average annual after-tax profit will be US$1,327.62 million, the after-tax financial internal rate of return will be 16.68%, and the after-tax payback period will be 9 years (including the construction period of 4 years). We believe that the commissioning of the refining and chemical project in Indonesia is expected to help the company's profitability reach a new level and help it grow in the future.
4 Earnings Forecasts and Valuations
4.1 Profit Forecast
1) Polyester filament
As of 23H1, the company has a polyester filament production capacity of 7.4 million tons, and is expected to add 400,000 tons of production capacity in 24 years. The company's capacity utilization rate and production and sales rate remain high, and it is expected that the sales volume of polyester filament yarn from 2023 to 2025 will be 6.84 million tons, 7.56 million tons and 7.8 million tons respectively. With the improvement of internal and external demand for polyester filament, and the slowdown in the expansion of the supply side, the gross profit margin is expected to gradually recover, and the gross profit margin of the polyester sector is expected to be 6.06%, 7.65% and 8.18% in 23-25 years.
2) Polyester staple fiber
As of 23H1, the company has a polyester staple fiber production capacity of 1.2 million tons, and the operating rate is expected to gradually increase in 23-25 years, the company's 23-25 years polyester staple fiber sales were 990,000 tons, 1.08 million tons, 1.18 million tons, and the gross profit margin of staple fiber is expected to be 1.7%, 1.8% and 1.8% respectively.
3) Petrochemicals
The company's PTA production capacity is mainly for the integration of polyester filament, and the rich output will be exported. In the first three quarters of 2023, the company's PTA sales volume was 362,000 tons, and it is expected to export 500,000 tons in 23 years, assuming that the 23-year level will be maintained in 24 and 25 years. With the gradual optimization of device costs, the company's PTA gross profit margin is expected to gradually improve, and it is expected that the gross profit margin of this product will be 0.84%, 2.19% and 3.15% in 23-25 years.
4.2 Valuation
With the gradual improvement of the internal and external demand of polyester filament, and the gradual slowdown of the expansion of the superimposed supply side, the profitability of polyester filament is expected to improve in the future. The company is a polyester filament leader, and at the same time extends to the upstream layout of PTA and refining and chemical fields, and selects Tongkun Co., Ltd., Rongsheng Petrochemical and Hengli Petrochemical as comparable companies.
According to Wind, the average PE of comparable companies in 2024 is 10.52 times, Xinfengming's polyester filament production capacity ranks among the top three in the world, and it plans to expand 5.4 million tons of PTA to strengthen the integration advantage, and at the same time, it plans to lay out refining and chemical projects in Indonesia in the future, with a PE of 10.03 times in 24 years, which is lower than that of comparable companies.
5 Risk Warning
Impact of raw materials and price fluctuations: The company's main raw materials and product prices will be affected by the commodity and macroeconomic environment.
Polyester demand is less than expected risk: the current domestic demand for textile clothing has been repaired, if overseas such as the United States and other textile demand recovery is less than expected, polyester profitability repair will have great uncertainty.
Risk of substantial expansion of the industry: After 23 years, it is expected that the pace of expansion of the polyester filament industry will slow down, and the supply and demand pattern of the industry will be optimized.
Risk that the progress of the Indonesian project is not as expected: The company is investing in overseas projects for the first time, and the approval and policy are uncertain.
Credibility risk of third-party data platforms: According to third-party data, the expansion of polyester filament yarn has slowed down significantly in 24 years, and if the data is biased, the profit repair of filament yarn may be less than expected.
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The report comes from [Foresight Think Tank]