The gross margin of the industry in the third quarter was 16.22%, -0.35 percentage points year-on-year, -1.12 percentage points quarter-on-quarter; the net income margin attributable to the mother was 5.01%, -0.34% year-on-year, -1.29% quarter-on-quarter.
Zhitong Finance APP learned that Debon Securities released research reports stating that under the background of the decline in raw material costs and weakening macro demand, the chemical industry faces the challenge of product price bottoming out and profit pressure. The profit recovery in the third quarter of 2024 is slow, and the industry's gross margin and net profit margin are still at relatively low levels. Most sub-industries have experienced an increase in asset-liability ratios quarter-on-quarter. In recent years, the industry's capacity expansion has been rapid, putting pressure on the supply side. However, the proportion of fixed assets in construction in relation to total assets and the proportion of capital expenditure to revenue have both decreased, which may indicate that the pace of capacity expansion in the chemical industry is beginning to become more rational, with supply-side pressures expected to continue to ease marginally. The high-speed production cycle may be approaching a turning point.
Debon Securities' main points are as follows:
The product prices are bottoming out, causing some pressure on chemical industry profits.
Since entering the third quarter, energy prices such as crude oil have fluctuated downward. The average price of WTI crude oil futures in the third quarter was $75.34 per barrel, -8.22% year-on-year, -6.51% quarter-on-quarter; the average price of NYMEX natural gas futures was $2.14 per million British thermal units, -17.25% year-on-year, -4.85% quarter-on-quarter. With the downward trend in raw material costs compounded by weakening macro demand, chemical prices are in a state of bottom area oscillation, with the CCPI index averaging 4537.44 points in the third quarter, -3.13% year-on-year, -4.13% quarter-on-quarter.
The revenue scale of the basic chemical industry in the first three quarters achieved a slight growth of +2.27% year-on-year. The overall increase is mainly supported by enterprises increasing revenue through volume-price support. Some sub-industries have shown highlights: The rubber products sector mainly benefited from the general increase in rubber product prices in the third quarter, leading to a significant 19.69% year-on-year revenue growth; the tire sector mainly due to the accelerated expansion of cost-effective tire products in China going global, helping revenue grow by 13.58% year-on-year; the fluorine chemical industry benefited from the recovery-driven by production quota constraints for refrigerants, with industry revenue increasing significantly by 11.44% year-on-year. The industry's net income attributable to the mother has not escaped the decline, -0.92% year-on-year, but the decline has significantly narrowed year-on-year.
"Golden September and Silver October" peak season is not prosperous, and the profit level has declined slightly.
Industry gross margin for 24Q1-Q3 was 16.91%, +0.13pct year-on-year; net income margin attributed to shareholders was 5.79%, -0.19pct year-on-year. In the third quarter alone, the industry gross margin was 16.22%, -0.35pct year-on-year, -1.12pct quarter-on-quarter; net income margin attributed to shareholders was 5.01%, -0.34% year-on-year, -1.29pct quarter-on-quarter. The current industry gross margin and net income margin have declined significantly since 2022, although there has been marginal improvement since 2024, profit recovery is slow, and both are still relatively at the bottom.
Among sub-industries, the industries with the highest year-on-year improvement in gross margin for the first three quarters were food and fodder additives (+3.91pct), carbon black (+2.72pct), chlorine alkali (+2.66pct), coal chemical industry (+2.47pct), and tires (+2.38pct); while sub-industries with the highest decline in gross margin year-on-year were potassium fertilizer (-5.13pct), film materials (-3.14pct), rubber products (-3.07pct), electronic chemicals III (-2.81pct), and plastic products (-2.11pct).
In terms of net profit margin, the industries with the highest year-on-year improvement in net income margin for the first three quarters were tires (+2.42pct), carbon black (+2.25pct), food and fodder additives (+2.10pct), chlorine alkali (+1.64pct), and paint and ink (+1.59pct); while the industries with the highest decline in net income margin year-on-year were potassium fertilizer (-7.50pct), film materials (-4.15pct), electronic chemicals III (-3.50pct), pesticides (-3.04pct), and plastic products (-2.60pct).
Profit quality is secure, and debt repayment pressure is controllable.
From a cash flow perspective, industry operating cash flow for 24Q1-Q3 increased by +10.01% year-on-year, and by +9.26% quarter-on-quarter for 24Q3. Looking at the net cash ratio, since 2018, the industry's net cash ratio has been higher than 1, indicating consistently good profit quality for the industry. From the perspective of asset-liability ratio, as of 24Q3, the basic chemical industry's asset-liability ratio was 48.24%, a slight increase of 0.31pct quarter-on-quarter, showing a moderate growth trend since 2022, and overall at a controllable level.
In the third quarter, the asset-liability ratio of most sub-industries increased quarter-on-quarter, with plastic products (+2.78pct), chlorine alkali (+2.11pct), modified plastics (+1.45pct), synthetic resins (+1.40pct), and polyurethane (+1.01pct) showing a significant increase in asset-liability ratio, while titanium dioxide (-1.12pct), chemical fibers (-1.08pct), phosphate fertilizers and phosphorus chemicals (-1.02pct), potassium fertilizers (-0.79pct), and food and fodder additives (-0.79pct) showed more improvement in asset-liability ratio.
The growth rate of construction in progress and capital expenditure slowed down, and the high-speed investment cycle may have reached a turning point.
After experiencing a high boom in the chemical industry from 2020 to 2022, in recent years, the industry's capacity expansion has been rapid, creating some pressure on the supply side. As of 24Q1-Q3, the basic chemical industry's total construction in progress was 443.638 billion yuan, +7.82% year-on-year, but contracting by 7.00pct compared to the full year of 23. Among them, the third quarter saw rubber products (+54.93%), adhesives and tapes (+50.44%), civil explosive products (+48.19%), polyurethane (+47.33%), and potassium fertilizers (+45.63%) leading the year-on-year growth in construction in progress, while nitrogen fertilizers (-54.50%), titanium dioxide (-38.06%), other chemical raw materials (-36.35%), paint and ink (-34.72%), and compound fertilizers (-20.25%) saw a significant decrease in the scale of construction in progress.
From the perspective of proportion, the proportion of construction projects to fixed assets in the basic chemical industry in the first three quarters is 33.07%, a year-on-year decrease of -2.53 percentage points, -1.58 percentage points year-on-year in 2023, with the decline expanding by 0.95 percentage points. In terms of capital expenditure, the industry's capital expenditure in Q3 2024 was 53.221 billion yuan, a year-on-year decrease of -6.16%, and the industry's capital expenditure as a proportion of revenue was 8.58%, a year-on-year decrease of -3.88 percentage points. Among them, the capital expenditures of soda ash (+39.20%), chlor-alkali (+30.45%), chemical fiber (+28.29%), synthetic resins (+11.88%), fluorine chemicals (+6.94%) are leading the way, while the capital expenditures of organic silicon (-96.51%), rubber products (-75.91%), coal chemicals (-71.65%), potash fertilizer (-69.98%), and other sub-industries such as fine chemicals and new materials (-62.42%) have seen significant decreases. The industry believes that the decreasing proportion of construction projects to fixed assets and capital expenditure to revenue may indicate that the pace of capacity expansion in the chemical industry is becoming more rational, and supply-side pressures are expected to continue to gradually ease.
Recommend focusing on four main themes:
① Core assets entering the long-term value range. At present, the profitability of chemical products may have bottomed out, with fundamental downside risks fully released, and leading chemical companies are expected to see a valuation and profit double recovery. Focus on: Ningxia Baofeng Energy Group (600989.SH), Wanhua Chemical Group (600309.SH), Shandong Hualu-Hengsheng Chemical (600426.SH), Satellite Chemical (002648.SZ).
② Industries facing supply shortages or constraints are the first to experience elasticity. Disturbances have already appeared in the supply side of some chemical products, and attention should be paid to the performance elasticity brought by price increases of related enterprises. Vitamins: Zhejiang Medicine (600216.SH), Zhejiang NHU (002001.SZ), Nengt Technology (002102.SZ); Sucrose chloride: Anhui Jinhe Industrial (002597.SZ); Refrigerants: Zhejiang JuHua (600160.SH), Zhejiang Sanmei Chemical Industry (603379.SH), Dongyue Group (00189); Polyester filament: Tongkun Group (601233.SH), Xinfengming Group (603225.SH).
③ Focus on industries where demand certainty is moving upward. Explosives: Explosive Co.,Ltd (002096.SZ), Anhui Jiangnan Chemical Industry (002226.SZ), Guangdong Hongda Holdings Group (002683.SZ), Xinjiang Xuefeng Sci-Tech (603227.SH), Tibet Gaozheng Explosive (002827.SZ), etc. Modified plastics: Kingfa Sci. & Tech. (600143.SH), Orinko Advanced Plastics (688219.SH), Qingdao Gon Technology (002768.SZ). Compound fertilizer: Stanley Agriculture Group (002588.SZ), Xinyangfeng Agricultural Technology (000902.SZ), Chengdu Wintrue Holding (002539.SZ), etc.
④ Focus on the reevaluation of value for high-dividend resource stocks in the chemical industry. The New Nine Policies lead to high-quality development in the capital markets, and high-dividend assets are expected to undergo value reassessment. Phosphorus ore: Yunnan Yuntianhua (600096.SH), Shenzhen Batian Ecotypic Engineering (002170.SZ), Guizhou Chanhen Chemical Corporation (002895.SZ). Titanium ore: LB Group Co., Ltd. (002601.SZ). Natural alkali: Inner Mongolia Yuan Xing Energy (000683.SZ). Crude oil: CNOOC (600938.SH), PetroChina (601857.SH), Sinopec (600028.SH).
Risk Warning: Risks of macroeconomic downturn, significant fluctuations in raw material prices, downstream demand falling short of expectations, risks of substantial capacity expansion, safety production and environmental protection risks, and risks of enterprise operations.
