Hengli is planning to build a new PTA plant petrochemical base

Hengli Petrochemical (Dalian) Co., Ltd. (hereinafter referred to as "Hengli petrochemical") is a subsidiary of Hengli Petrochemical Co., Ltd. (hereinafter referred to as "Hengli petrochemical") which plans to invest 2.908 billion yuan (with its own funds of 872 million yuan) to build the "pta-4 project with an annual output of 2.5 million tons". The project adopts the latest technology of INVISTA. The company expects to complete the civil engineering and commissioning and trial production of 2019q4 by the end of 2018. The company expects that the revenue of the project will reach 11.25 billion yuan and the after tax profit will reach 680 million yuan. We expect the EPS of the company to be 0.84/2.33/2.75 yuan in 2018-2020, maintaining the rating of "overweight". The industrial chain of the petrochemical base is further improved, with significant synergy advantages.

The project has multiple meanings: 1. The project is located in the petrochemical industrial park of Changxing Island Economic Zone, Dalian, adjacent to the PTA units of Hengli Petrochemical phase I and phase II, and the public works rely on the existing units, which helps to optimize the construction period of the project and reduce the investment amount; 2. The project is close to Hengli refining, which will be put into operation The transportation cost of raw material PX is low and has the advantage of coordination; 3. The company currently has 6.6 million tons of PTA capacity. The project will further strengthen the scale and cost advantage of Hengli in the upstream of polyester chemical fiber industrial chain and enhance the overall competitiveness.

The price of polyester filament has recovered. Since the mid March of PTA boom, along with the recovery of downstream construction and driven by the increase of oil price, according to China silk capital network, the price of polyester filament (fdy50d) in Shengze area has been stable at 11200 CNY/ton. PTA quotation in East China is 5445 CNY/ton, and the price difference is narrowed to 600 CNY/ton. Considering the estimated increase of 3 million tons of polyester production capacity in the first half of 2018, PTA supply and demand are expected to continue to improve, and the medium-term prosperity is expected. In addition, according to Baichuan information, the current quotation of BOPET / PBT (kh2100) in East China is respectively 1.20/12200 CNY/ton, up 7.9% / 3.4% since the beginning of 2018, and Kanghui Petrochemical's performance is expected to continue to improve. Hengli refining and Chemical Co., Ltd. has made smooth progress. The 20 million ton refining and chemical integration project of the ethylene project has entered the peak of installation in March.

The company is expected to be completed and put into operation in 2018q4. If the subsequent supporting financing is successfully completed, the construction of the project is expected to speed up. At present, the process package design of the supporting 1.5 million ton ethylene project has been completed, and the detailed design work and equipment procurement work are being rapidly promoted. The company plans to start construction in the first half of this year, and it is expected to be completed and put into operation by the end of 2019. The product planning is reasonable and the development prospect is good, which is expected to help the future growth. Hengli is a leading enterprise in polyester PTA industry in China. We expect that the high prosperity of polyester filament is expected to continue, PTA performance will gradually improve, Hengli refining and production is expected to contribute substantial profits, and ethylene project will open up long-term growth space. We maintain the forecast of EPS of 0.84/2.33/2.75 yuan in 2018-2020 (the impact of supporting financing on profits and equity is not considered temporarily), and maintain the rating of "increasing Holdings". Risk tip: the risk of large fluctuation of oil price, and the risk that the construction progress of refining and chemical projects does not meet the expected risk.