Image source@Visual China
Following the announcement of the "marriage" with Saudi Aramco, a local oil tyrant in the Middle East, Rongsheng Petrochemical (002493. SZ) and then magnify the move.
On the evening of January 2, Rongsheng Petrochemical disclosed a package of announcements, including the company's plan to invest 67.5 billion yuan in the construction of Jintang new material project, as well as the mutual acquisition of equity in subsidiaries with Saudi Aramco. In addition, Rongsheng Petrochemical also disclosed the progress of the company's latest share repurchase.
Titanium Media App noticed that the short-term solvency and cash flow of Rongsheng Petrochemical are not optimistic, and this large-scale increase in new projects is bound to increase the company's interest burden. In addition, due to the company's stock price falling endlessly, Saudi Aramco, which had previously invested in Saudi Aramco at a premium of 9%, has been trapped. Although Rongsheng Petrochemical made a big move to repurchase, it had little effect because the repurchase was not used to cancel the capital reduction.
67.5 billion yuan of new projects were added, and short-term solvency was under pressure
According to the announcement, in order to extend the industrial chain of Zhejiang Petrochemical and Zhongjin Petrochemical, further enhance the company's comprehensive competitiveness, and develop low-carbon olefin and green environmental protection industries, Rongsheng New Materials (Zhoushan) Co., Ltd., a wholly-owned subsidiary of Rongsheng Petrochemical, plans to invest in the construction of Jintang New Materials Project.
The Jintang new material project will add new materials such as EVA, POE, PC, and ultra-high molecular weight polyethylene. The company plans to invest 67.5 billion yuan to build Jintang New Material Project (Zhoushan), which mainly includes 3 million tons/year catalytic cracking unit, 1 million tons/year gas separation unit, 600,000 tons/year aromatic hydrocarbon extraction unit, 300,000 tons/year PEO unit, 1 million tons/year EVA unit, 200,000 tons/year POE unit, 300,000 tons/year α-olefin unit, etc.
The construction period of the project is 3 years, and according to the feasibility study report, the project is expected to achieve an average annual operating income of 86.9 billion yuan, an average annual net profit of 15.5 billion yuan, and an after-tax IRR of 24.81%.
The total investment of the above project is expected to be 67.5 billion yuan, and the source of funds is the company's own funds and bank loans. It is worth noting that Rongsheng Petrochemical's cash flow is not abundant, and increasing investment may make its cash flow "worse".
As of September 30, 2023, the net cash flow generated by Rongsheng Petrochemical's operating activities was -2.25 billion yuan, a year-on-year decrease of 106.89%, and in the first quarter of 2023, this indicator was -11.061 billion yuan. Although the cash flow situation has improved, it has not been able to turn positive.
The problem may be related to the company's lack of earning power in stages. In the first three quarters of 2023, Rongsheng Petrochemical achieved operating income of 239.047 billion yuan and net profit attributable to the parent company of 108 million yuan, but the net profit after deducting non-profit was only -130 million yuan. In terms of a single quarter, the company achieved a net profit of 1.234 billion yuan in the third quarter, while the net profit in the first half of the year was -1.127 billion yuan.
For the reasons for the decline in performance in the first half of the year, the secretary of the board of directors of Rongsheng Petrochemical once said that the high price of crude oil in the first half of the year and the slow recovery of downstream demand led to the narrowing of the price spread of the company's main products, resulting in a loss in the semi-annual performance. With the steady recovery of the domestic economy and the gradual recovery of downstream demand, the company's operating conditions have improved.
At the same time, the company's short-term solvency continued to be under pressure. Since 2018, Rongsheng Petrochemical's asset-liability ratio has remained above 70% all year round. As of September 30, 2023, the debt-to-asset ratio was 74.26%. The company holds monetary funds of 32.082 billion yuan, short-term borrowings of 54.983 billion yuan, and non-current liabilities due within one year of 23.219 billion yuan. Obviously, it is difficult for monetary funds to cover the size of short-term debt.
Debt-to-asset ratio, source: Wind
With the launch of the Jintang new material project, it will undoubtedly increase the company's interest burden. In the first three quarters, Rongsheng Petrochemical's interest expense was 5.473 billion yuan, which far exceeded the scale of 4.578 billion yuan in 2022.
Some investors have asked the company to explain why interest expenses have nearly doubled year-on-year in the first half of 2023. In this regard, Rongsheng Petrochemical said: "Interest expenses are affected by many factors such as loan amount, loan term, and effective interest rate, and the company will continue to do a good job in relevant financing work, broaden financing channels, improve capital utilization rate, and reduce financing costs." ”
Source: Interactive Platform
According to public information, Rongsheng Petrochemical is one of the leading enterprises in the petrochemical industry in China. The company operates the 40 million tons refining and chemical integration project of Zhejiang Petrochemical Co., Ltd., the world's largest monomer refinery, and is an important producer of polyester, new energy materials, engineering plastics and high value-added polyolefins in China and Asia, with the world's largest production capacity of PTA, PX and other chemicals, and at the same time ranks among the top in the world in the production capacity of polyethylene, polypropylene, PET, EVA, ABS and other products, and will be recognized by the well-known British brand evaluation agency Brand in 2023 Finance ranked 7th in the Chemicals 25 2023 report.
The buyback trick didn't work, and the Middle Eastern tyrants were also trapped
Last night, Rongsheng Petrochemical also disclosed another blockbuster announcement. The Company and Saudi Aramco signed a Memorandum of Understanding (MoU) to discuss the mutual acquisition of equity interests in its subsidiaries, namely the proposed acquisition of a 50% stake in Saudi Aramco's Jubail Refining & Chemical Company (SASREF), and the acquisition of up to 50% equity interest in Ningbo Zhongjin Petrochemical Co., Ltd. (CICC Petrochemical), a subsidiary of Rongsheng Petrochemical, and the joint development of the upgrading and expansion of CICC Petrochemical's existing units and the development of a new downstream Rongsheng New Materials (Zhoushan) project.
In fact, as early as March 27, 2023, the two parties signed a strategic cooperation package under which Saudi Aramco, through its wholly-owned subsidiary, Aramco Overseas, acquired a 10% stake in Rongsheng Petrochemical for 24.6 billion yuan (approximately US$3.4 billion at current exchange rates).
At that time, Li Shuirong, chairman of Rongsheng Petrochemical, said, "The completion of this transaction marks that Rongsheng and Aramco will join hands to enter a new era, and it also means that Rongsheng's internationalization strategy has taken an important step." ”
It is worth noting that the equity transfer price is 24.3 yuan, which is nearly 9% higher than the closing price of the day (12.91 yuan). Affected by this news, Rongsheng Petrochemical has successively harvested two price limits.
Just as investors were immersed in the soaring market, the share price of Rongsheng Petrochemical suffered a rapid correction. As of January 3, Rongsheng Petrochemical closed at 10.31 yuan, down about 35% from the high point of the year in 2023 and down 57.6% from the share price of Saudi Aramco.
Stock price performance, source: Wind
In the face of the endless decline in stock prices, Rongsheng Petrochemical chose to offer a big buyback move, but with little effect.
On November 27, 2023, Rongsheng Petrochemical disclosed the announcement of raising the amount of shares repurchased in the third phase, adjusting the total amount of funds used for repurchase to no less than 1.5 billion yuan (including the principal number) and no more than 3 billion yuan (including the principal number), an increase of 5-1 billion yuan. Rongsheng Petrochemical said that this move is based on the confidence in the company's future development prospects and the recognition of the company's long-term value, in order to safeguard the interests of investors, especially small and medium-sized investors, and enhance investors' confidence.
It is reported that Rongsheng Petrochemical has started to implement the share repurchase plan since March 29, 2022, with the first phase of the repurchase plan completed on August 2, 2022, and the second phase of the repurchase plan completed on July 27, 2023.
According to yesterday's announcement, as of December 29, 2023, the company has repurchased a total of 516,433,122 shares of the company in the first three phases of repurchase, accounting for 5.1003% of the company's total share capital, with a total transaction amount of 6.62 billion yuan (excluding transaction costs). Among them, the third phase of the repurchase of the company's shares 232,487,670 shares, accounting for 2.2961% of the company's total share capital, the highest transaction price of 12.70 yuan / share, the lowest transaction price of 9.94 yuan / share, the total transaction amount of 2.632 billion yuan (excluding transaction costs).
After the third phase of the repurchase was offered, the share price of Rongsheng Petrochemical still did not improve significantly, and obviously investors did not buy it. The reason is that the company's repurchase of shares was not used to cancel the capital reduction in the first place.
According to the secretary of the board of directors of Rongsheng Petrochemical, the main purpose of the company's third phase of repurchased shares is to convert the corporate bonds or employee stock ownership plans issued by listed companies that can be converted into shares, and if the company fails to implement the above uses within 36 months after the completion of the repurchase of shares, the unused part will be cancelled in accordance with the relevant procedures.
"With the volatility of the A-share market, investors are beginning to doubt the true intentions of some companies to buy back. A securities industry analyst told Titanium Media App that investors may be worried that the company's share buyback is only for the purpose of maintaining the stock price, rather than really caring about maximizing shareholder value. If these buybacks are not accompanied by write-offs, then the company is not actually reducing its share capital, but simply transferring the shares into the company's own hands, which may raise more doubts.
Another senior investor said that the repurchase of shares by listed companies for equity incentives is actually turning the buyback into a tool for major shareholders to enjoy the company's profits, giving benefits to executives in disguise, but making retail investors pay. (This article was first published on the Titanium Media App, by |.) Ma Qiong)