Eastern Shenghong Projects Losses of Up to ￥2.4 Billion in 2024, Year-on-Year Decline Exceeds 400%

On January 25, Eastern Shenghong revealed its earnings forecast for 2024, anticipating a substantial loss for the year. The company estimates a total loss attributable to shareholders of between 2 billion and 2.4 billion CNY, a stark contrast to the profit of 717 million CNY reported during the same period last year. This represents an alarming year-on-year decline of 378.93% to 434.71%.

When excluding non-recurring gains and losses, the expected loss rises to 2.345 billion to 2.745 billion CNY, compared to a profit of 217 million CNY in the previous year, indicating a potential drop of 1180.18% to 1364.43%.

In the first three quarters of 2024, Eastern Shenghong reported a loss of 1.419 billion CNY, suggesting that additional losses in the fourth quarter could range from 581 million to 981 million CNY. Despite achieving a net profit of 319 million CNY in the first half, the company suffered a considerable loss of 1.738 billion CNY in the third quarter alone. Although total revenue grew by 10.46% in the first half, this growth rate dropped to 4.46% by the end of the third quarter.

The primary driver behind these losses appears to be escalating operating costs. The petrochemical and chemical materials segment accounted for 80.84% of revenue in the first half, yet operating costs surged by 13.74%, leading to a reduced gross margin of 10.82%. The second half is expected to see further declines in this margin.

Additionally, the company faced significant increases in management, research and development, and financial expenses, which collectively rose by 1.847 billion CNY compared to the previous year. Financial expenses alone surged from 2.278 billion CNY to 3.640 billion CNY. By the first half of the year, Eastern Shenghong's operating profit had already turned negative, revealing vulnerabilities within the petrochemical sector amid rising inflation and an economic downturn.

The surge in financial expenses aligns with a rise in company debt, which increased from 154.723 billion CNY at the beginning of the year to 174.575 billion CNY by the end of the third quarter, a growth of 19.852 billion CNY. Short-term loans rose significantly by 13.579 billion CNY, pushing the company’s debt-to-asset ratio from 81.34% to 83.92%.

Given these challenges, Eastern Shenghong's rising operating costs and expenses are unlikely to improve in the short term. However, this situation may accelerate various project developments. Key projects for 2024 include the 16 million tons/year refining and integration project (now operational), the Rebang Technology Phase II project producing 250,000 tons of differentiated and functional polyester filament, and several other initiatives aimed at enhancing production capabilities.