Saudi tyrants made a move, and Hengli Petrochemical was "copied from the bottom"?

Node Finance

2024-05-16 13:20Posted on the official account of Shandong Node Finance

Saudi tyrants made a move, and Hengli Petrochemical was "copied from the bottom"?

Speaking of "oil tyrants", the first name you think of is most likely inseparable from Saudi Arabia. Because the world's largest oil producer, Saudi Aramco, once competed with Apple for the world's largest market capitalization, and is notoriously wealthy.

With the deepening of cooperation between China and Saudi Arabia, Saudi Aramco has frequently signed a number of equity and industrial agreements with partners such as Rongsheng Petrochemical, Shenghong Petrochemical, a wholly-owned subsidiary of Oriental Shenghong, and Yulong Petrochemical.

Recently, Saudi Aramco has made another big move, and the partner it has chosen is more well-known, that is, Hengli Petrochemical, the "refining and chemical mao".

Not long ago, Hengli Petrochemical announced that the company's controlling shareholder Hengli Group has signed a "Memorandum of Understanding" with Saudi Aramco, and reached a preliminary intention document for relevant equity investment and business cooperation, and Saudi Aramco intends to acquire 10% of its shares in Hengli Petrochemical from Hengli Group, plus "1 share" of voting rights.

As of the close of trading on May 15, the total market value of Hengli Petrochemical was 111.3 billion yuan. Based on the latest share price and trading a 10% stake, Aramco would pay more than $11 billion in the deal.

However, don't look at the large amount of the transaction, for Hengli Petrochemical, this transaction does not seem to be cost-effective, and there is a feeling of being "bought by Saudi Aramco". This is because, compared with the high point of 48 yuan/share in 2021, the price of Hengli Petrochemical at 15.81 yuan/share is still down by more than 7%.

So, what are the considerations for Hengli Petrochemical to embrace Saudi Aramco? What does the future hold for the Chinese refining giant?

1. Should I be happy that my net profit has doubled?

Here is a brief introduction to Hengli Petrochemical to understand its core business. According to public information, Hengli Petrochemical is the core listed subsidiary of Hengli Group, a 100 billion giant in China's private refining and chemical industry, listed on A-shares in 2016, and its main products are refining and chemical products, PTA and new material products, and the main raw materials are coal, crude oil, butylene glycol and PX.

In addition, in terms of management, Fan Hongwei, chairman of Hengli Petrochemical, has won the title of China's richest woman, and her husband Chen Jianhua is the chairman and president of Hengli Group. According to the 2024 Hurun Global Rich List, the couple is worth 115 billion yuan, ranking among the hundreds of billionaires.

Judging from the current operating conditions of Hengli Petrochemical, the latest disclosed financial results seem to be good.

On the same day that the cooperation with Saudi Aramco was announced, Hengli Petrochemical released its financial report for the first quarter of 2024, and the company achieved revenue of 58.412 billion yuan, a year-on-year increase of 4.02%; The net profit attributable to the parent company was 2.139 billion yuan, a year-on-year increase of 109.8%.

The most obvious reason for the slight increase in revenue and the doubling of net profit is the significant increase in profitability. Combined with the characteristics of the petrochemical industry in which it is located, it seems to give people a feeling that the cycle of the refining and chemical industry has returned.

Specifically, the carbon cost price in the upstream of Hengli Petrochemical is declining, and the cost price of crude oil has risen, but it has also remained at a relatively stable level; In the downstream of the industrial chain, with the recovery of residential consumption and industrial demand, the demand for polyester chemical fibers and functional films has been continuously strengthened, and the price gap has further recovered.

Under the joint action of upstream and downstream, it is difficult for Hengli Petrochemical not to make money.

In the 2023 annual report released not long ago, Hengli Petrochemical's performance growth is also okay. According to the data, in 2023, the company will achieve a total revenue of 234.791 billion yuan, an increase of 5.61% year-on-year; The net profit attributable to the parent company was 6.905 billion yuan, an increase of 197.83% year-on-year.

Overall, the cyclical return of the refining and chemical industry has created an increase in the performance of Hengli Petrochemical, and it has lasted for about a year.

However, it should be pointed out here that although Hengli Petrochemical's performance has been good so far in 2023, it is still insufficient compared with 2021. At that time, Hengli Petrochemical's annual net profit attributable to the parent company had created a new high of 15.531 billion yuan, and in 2023, the net profit performance will be less than half of that of two years ago under the condition of increased revenue.

So, what's the problem?

2. Revenue growth is slowing down, and there is suspense about getting out of the cycle

Whether it is pork stocks, display panel stocks, shipping stocks or petrochemical stocks, all cyclical industries have a dream, that is, to go through the cycle. However, this also shows that it is very difficult to cross the cycle.

As a cyclical enterprise, the performance of Hengli Petrochemical is mainly affected by the changes in upstream costs and the prosperity of downstream demand. The performance of Hengli Petrochemical has also been under the influence of a cyclical environment.

Moreover, Node Finance also found that because the industrial chain of the refining and chemical industry is very complex and lengthy, chemical enterprises have a "heavy asset" characteristic in addition to cyclicality. And along with heavy assets, it is capital-intensive. If a refining and chemical plant wants to be put into production, all equipment must be completed from beginning to end, and the capital occupation is large, which also creates a high asset-liability ratio of Hengli Petrochemical.

According to the 2023 financial report, Hengli Petrochemical's asset-liability ratio is 76.98%, short-term borrowings are 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, but its monetary funds are only 20.469 billion yuan, which cannot cover short-term debts.

This is not to say that Hengli Petrochemical will have capital chain problems, but under the high asset-liability ratio, enterprises will inevitably be constrained if they want to achieve "elephant turn" and get rid of the impact of industry cycle fluctuations.

At present, Node Finance found that although the net profit growth rate of Hengli Petrochemical is very high, it is mainly due to the low base in the early stage, and its pressure on revenue growth has begun to be highlighted. For example, in the three years before 2022, Hengli Petrochemical's revenue growth rate has been quite objective, with a revenue growth rate of 29.94% in 2021, and even 67.78% and 51.19% in 2019 and 2020, respectively.

However, its revenue growth rate plummeted to 12.31% in 2022 and will further decline to 5.62% in 2023. In the first quarter of this year, its revenue growth was only 4.02%, and the speed was further reduced.

Refining and chemical industry is a very important industry with scale effect, if the scale of revenue cannot keep up, no matter how much the net profit of the enterprise rises, it cannot get rid of the constraints of scale. How to get rid of the slowdown in revenue growth and develop the second growth curve has become a challenge for Hengli Petrochemical.

3. The second growth curve has a long way to go

In fact, in the past few years, Hengli Petrochemical has been trying to develop new businesses and research and develop new materials. Node Finance found that since 2021, Hengli Petrochemical has actively deployed new materials such as lithium battery separators, electrolytes, PET copper foil and solar photovoltaic backsheet films, and has invested tens of billions of yuan in the construction of related new material projects.

For example, in 2021, Hengli Petrochemical will invest 30 billion yuan and successively start the construction of projects with an annual output of 800,000 tons of functional polyester film and functional plastics, 450,000 tons of PBS biodegradable plastics, 1.3 million tons of adipic acid chemical new material supporting projects and 1.6 billion square meters of lithium diaphragm projects.

It can be said that Hengli Petrochemical has been working hard to open up the second growth curve. But it has to be said that judging by the results, it does not seem to be ideal.

Here we can find some clues from the 2023 financial report. According to the data, the revenue of Hengli Petrochemical's petrochemical industry was 226.684 billion yuan, accounting for 96.52%; The revenue of "other industries", which represents the new business, was only 6.515 billion yuan, accounting for 2.77% of the revenue.

Moreover, a further comparison found that the revenue of its new business in 2022 will be 12.236 billion yuan, accounting for 5.50% of revenue. After comparison, it is not difficult to find that in 2023, Hengli Petrochemical's new business revenue will decline significantly in terms of proportion and scale.

Therefore, although the net profit of Hengli Petrochemical has increased significantly, the pressure of performance growth is still there. In this regard, the attitude of investment institutions is also worth considering, and many institutions have lowered their earnings forecasts. For example, Zhang Zhang, an analyst at Tianfeng Securities, pointed out in a 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.

On the whole, Node Finance believes that Hengli Petrochemical and Saudi Aramco, the world giant, can first alleviate the debt pressure brought by the company's cash flow and the development of the industry. At the same time, the support of Saudi Aramco in the upstream of the industrial chain can also reduce the cost pressure of Hengli Petrochemical, which can be said to kill two birds with one stone. However, in the long run, Hengli Petrochemical still has a long way to go to get out of the impact of cyclical fluctuations and successfully open up the second growth curve.

Although Saudi Aramco has the strength, it still depends on Hengli Petrochemical to return to the top.

Sentence / Nine years old

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