Produced by Radar Finance and Economics, edited by Xiao Sa, Deep Sea
100 billion "refining Mao" Hengli Petrochemical has made a big move.
On April 22, the company announced that the company's controlling shareholder Hengli Group signed a "Memorandum of Understanding" with Saudi Aramco, and the two sides are discussing the acquisition of 10% plus one share of the issued share capital of Hengli Petrochemical by Saudi Aramco, as well as cooperation in crude oil supply and raw material supply.
As the world's largest oil producer, Saudi Aramco can be regarded as an old friend of the A-share market. In the past year, this giant, with a market value of more than one trillion US dollars, has successively signed a number of agreements involving equity and industry with partners such as Rongsheng Petrochemical, Shenghong Petrochemical, a wholly-owned subsidiary of Oriental Shenghong, and Yulong Petrochemical.
This time, Hengli Petrochemical, a private refining and chemical leader that intends to "join hands", has its main business covering the upstream, middle and downstream business areas of the whole industrial chain of refining, petrochemical and polyester new materials, and is known as "refining and chemical Mao".
The actual controllers of Hengli Petrochemical are Chen Jianhua and Fan Hongwei, who were born at the grassroots level and borrowed money to buy the loss-making Wujiang Chemical Fiber Weaving Factory 30 years ago, which became the starting point of Hengli Group. According to the 2024 Hurun Global Rich List, the two ranked 122nd on the list with a wealth of 115 billion yuan.
Radar Finance and Economics found that behind Chen Jianhua and Fan Hongwei holding hands with Saudi Aramco, Hengli Petrochemical has high debts.
In 2023, Hengli Petrochemical's revenue will exceed 230 billion yuan and hit a new high, but its net profit will be less than half of that in 2021. At the same time, at the end of last year, the asset-liability ratio of Hengli Petrochemical was 76.98%, the total liabilities were as high as 200.6 billion yuan, and the short-term borrowings were 66.995 billion yuan, while the monetary funds were only 20.469 billion yuan, which could not cover the short-term debts.
Signed a memorandum of understanding with Saudi Aramco
As a representative of Middle Eastern capital with a heavy position in China, Saudi Aramco has set its sights on an A-share company.
According to the announcement of Hengli Petrochemical, the company received a notice from its controlling shareholder, Hengli Group Co., Ltd. (hereinafter referred to as "Hengli Group"), on April 22, 2024, that it has signed a Memorandum of Understanding with Saudi Arabian Oil Company (hereinafter referred to as "Saudi Aramco").
According to the MOU, the two sides are discussing the acquisition of 10% plus one share of the issued share capital of Hengli Petrochemical from Hengli Group, and that Hengli Group will support and promote strategic cooperation between Hengli Petrochemical and Saudi Aramco in crude oil supply, raw material supply, product offtake, technology licensing, etc.
Hengli Petrochemical said that the above clauses only reflect the initial willingness and principles of cooperation between the two parties and are not binding. Following the signing of the MoU, Aramco will conduct due diligence and other work on the company.
At present, Hengli Petrochemical is actually controlled by Chen Jianhua and Fan Hongwei, of which Chen Jianhua is the chairman and president of Hengli Group, and Fan Hongwei is the current chairman of the listed company.
As of the date of this announcement, Hengli Group directly and indirectly held 2.1 billion shares of Hengli Petrochemical, accounting for 29.84% of the issued share capital of the company, and Hengli Group and its persons acting in concert held a total of 5.311 billion shares of the company, accounting for 75.45% of the issued share capital of the company.
Hengli Petrochemical believes that if the above-mentioned share transfer is successfully implemented, it will be conducive to optimizing and improving the company's share capital structure.
In addition to the cooperation in the equity field, Saudi Aramco is also one of the important suppliers of raw materials such as Hengli Petrochemical crude oil. In October last year, Li Feng, secretary of the board of directors of Hengli Petrochemical, revealed that Hengli and Saudi Aramco have continuous cooperation in crude oil procurement.
For the proposed introduction of strategic investors, Cinda Securities pointed out that after the completion of Saudi Aramco's strategic investment, the company is expected to usher in new opportunities in terms of raw material supply guarantee, product sales channel development and technical cooperation.
Founded in 1933, Saudi Aramco is engaged in the exploration, development and production of crude oil, condensate, natural gas and natural gas liquids. In 2023, Aramco's total revenue was $440.88 billion and net profit was $121.3 billion.
In recent years, Saudi Aramco has continued to expand its presence in China in areas such as emissions reduction, materials research and development, and the chemical industry, as well as increasing cooperation in the form of equity investments.
According to 36Kr Overseas statistics, Saudi Aramco's investments in China in 2023 include: US$3.4 billion acquisition of a 10% stake in Rongsheng Petrochemical Co., Ltd. in Zhejiang, US$12 billion investment in the development of fine chemicals and raw material engineering in Liaoning, establishment of Fujian Zhongsha Petrochemical Co., Ltd. by SABIC and Fujian Province, with a total investment of US$6.4 billion, and signing a cooperation framework agreement with Dongfang Shenghong in Jiangsu to promote the acquisition of 10% of Shenghong Petrochemical In Shandong, Saudi Aramco and Shandong Yulong Petrochemical signed a memorandum of understanding to facilitate the acquisition of a 10% strategic stake in Yulong Petrochemical.
In addition to its mainline investments, Aramco Ventures' Prosperity 7 has offices in Beijing and Shanghai, with a $1 billion fund size before the capital increase, focused on investing in disruptive technology companies outside the energy sector.
Net profit soared, but it was less than half of its peak
On the same day that the above memorandum was disclosed, Hengli Petrochemical also announced its results for the first quarter of 2024.
According to the financial report, in the first quarter of 2024, the company achieved a total operating income of 58.412 billion yuan, a year-on-year increase of 4.02%, and a net profit attributable to shareholders of listed companies of 2.139 billion yuan, a year-on-year increase of 109.8%.
As for the main reason for the change in net profit, Hengli Petrochemical said that the company's leading products such as aromatic hydrocarbon chain PX and pure benzene maintained a high business cycle, and the profitability of coal chemical products such as acetic acid, adipic acid and liquid ammonia was better.
In addition, the company's downstream demand for polyester chemical fibers and functional films has further recovered with the recovery of residential consumption and industrial demand, while the upstream coal cost price has further declined, the cost price of crude oil has remained relatively stable, and the comprehensive cost and product structure advantages of the company's "oil-coal" integration have been further highlighted, and the company's profitability has been accelerated to recover.
In the 2023 annual report announced not long ago, Hengli Petrochemical also handed over a report card of a sharp increase in net profit.
According to the financial report, in 2023, the company will achieve operating income of 234.791 billion yuan, an increase of 5.61% year-on-year, and net profit attributable to shareholders of listed companies of 6.905 billion yuan, an increase of 197.83% year-on-year.
According to Flush iFinD data, the revenue scale of Hengli Petrochemical in 2023 will hit a record high, but the net profit attributable to the parent company is still less than half of the peak in 2021.
In 2021, Hengli Petrochemical's net profit attributable to the parent company reached a new high of 15.531 billion yuan, but in the following year, it suffered a profit "Waterloo", plummeting 85.07% year-on-year.
At that time, the company said that the decline in profits in 2022 was mainly due to the rapid rise in the prices of major raw materials such as crude oil and the oscillation of high and wide ranges, and the weak recovery of demand in the industry market.
It is not difficult to see that as a cyclical enterprise, the performance of Hengli Petrochemical's net profit is mainly affected by upstream cost changes and downstream demand prosperity.
At present, the company's performance in the first quarter of 2024 is improving, but in the face of the petrochemical industry, the performance pressure of Hengli Petrochemical is still not small.
On April 23, Zhang Zhang, an analyst at Tianfeng Securities, pointed out in the research report that due to the drag of the olefin boom, the net profit forecast of Hengli Petrochemical in 2024 and 2025 was lowered from 13 billion and 16.3 billion to 9.5 billion and 12 billion respectively, giving the company a forecast of 13 billion net profit attributable to the parent in 2026.
Judging from this prediction, Hengli Petrochemical is still a long time away from returning to the peak of profit scale.
It is worth mentioning that Hengli Petrochemical's dividends have always been relatively generous. According to the data of Flush iFinD, the company has paid cash dividends 12 times since its listing in August 2001, with a cumulative dividend of 18.534 billion yuan and a dividend rate of 31.68%.
According to the profit distribution plan for 2023, the company plans to distribute a cash dividend of 0.55 yuan (tax included) per share to all shareholders, with a total cash dividend of 3.872 billion yuan (tax included), and a cash dividend ratio of 56.07%.
However, Chen Jianhua and Fan Hongwei directly and indirectly hold 75.45% of the shares of Hengli Petrochemical. According to this dividend plan, the cash dividends of the two in 2023 will reach nearly 3 billion yuan.
The scale of liabilities exceeded 210 billion yuan
The entrepreneurial story of Chen Jianhua and Fan Hongwei can be traced back to the 90s of the last century.
According to media reports, in 1994, Chen Jianhua and Fan Hongwei, who were only 23 years old, borrowed 2.69 million yuan to subscribe to the collective weaving factory in Nanma Town, which was on the verge of bankruptcy, and renamed it Wujiang Chemical Fiber Weaving Factory.
The first thing they did after the acquisition was to eliminate all backward shuttle looms and borrow money to introduce advanced 1,200-spindle network vehicles. The new equipment improved production and quality, and the factory made a profit of more than 10 million in the second year.
As for the first pot of gold for the husband and wife to start a business, the source is the same as most ordinary people. Chen Jianhua once recalled that when he dropped out of school due to poverty before the age of 14, he devoted himself to the silk industry. Relying on the silk trade, he already had millions of assets in his early 20s.
Subsequently, during the Asian financial crisis in 1997, Chen Jianhua and his wife went the opposite way, taking advantage of the contraction of many textile enterprises to pocket the looms they sold at low prices. After this crisis, their textile mill stood out thanks to this batch of advanced equipment.
Starting from the textile industry, Chen Jianhua and Fan Hongwei continued to expand to the upstream of the industrial chain. In 2002, Jiangsu Hengli Chemical Fiber Co., Ltd. was formally established, with a total investment of 2.2 billion yuan.
In 2010, Hengli Group's 200,000-ton industrial yarn project was officially put into operation, making it replace German enterprises to become the world's largest polyester industrial yarn production enterprises. In the same year, Hengli Industrial Park laid the foundation and began to officially enter the petrochemical industry.
With the commissioning of the first phase of the PTA project in Changxing Island Industrial Park in 2012 and the second phase in 2015, the Group has the world's largest single PTA plant with an annual output of 6.6 million tons, and has officially entered the field of petroleum refining.
At present, Hengli Petrochemical has an upstream crude oil processing capacity of 20 million tons/year, a coal processing capacity of 5 million tons/year, an ethylene plant of 1.5 million tons/year, an annual output of 5.2 million tons of PX and 850,000 tons of acetic acid, a midstream production capacity of 16.6 million tons of PTA and 1.8 million tons of fiber-grade ethylene glycol production capacity, and a downstream polyester and new chemical material products such as civil polyester filament, industrial polyester filament, BOPET, PBT, PBS/PBAT.
However, on the other side of the layout of the whole industry chain, the commissioning of many projects corresponds to huge capital expenditures.
Soochow Securities pointed out that since 2021, Hengli Petrochemical has entered a new round of capital expenditure cycle. In 2021, 2022 and 2023, the company's capital expenditure amounted to 13.4 billion yuan, 25.7 billion yuan and 39.7 billion yuan, respectively. Among them, 2023 is the peak period of the company's project construction, setting a new high since the refinery was put into operation in 2019.
The high capital expenditure has also pushed up the debt scale of Hengli Petrochemical.
According to the financial report, at the end of 2023, Hengli Petrochemical has a total debt of 200.6 billion yuan, with an asset-liability ratio of 76.98%, of which short-term borrowings are as high as 66.995 billion yuan, notes payable and accounts payable are 27.601 billion yuan, and non-current liabilities due within one year are 13.498 billion yuan, while monetary funds are only 20.469 billion yuan, which cannot cover short-term debts.
Recently, the company replied to investors on the interactive platform that the company's asset-liability ratio is closely related to the capital expenditure of the project, and since 2022, the company has entered a new round of capital expenditure stage.
In the annual report, Hengli Petrochemical said that from the second half of 2024, the company will basically end the peak period of this round of investment, construction and capital expenditure, and the follow-up business focus will be on "optimizing operations, reducing debts and strengthening dividends", and continue to build a value "growth + return" listed company.
For the follow-up development of Hengli Petrochemical, Radar Finance will continue to pay attention.