The chemical industry will usher in certain growth opportunities

1. The chemical industry boom has fallen, and it is recommended to embrace definite growth opportunities in 2022

1.1 Review of the overall situation of the chemical industry: industry revenue and profit increased significantly year-on-year, reaching a record high

The revenue and net profit of the chemical industry increased significantly year-on-year. In the first three quarters of 2021, the chemical (Shenwan) industry achieved operating income of 4,184.94 billion yuan, an increase of 36.4% over the same period last year, and achieved net profit of 280.71 billion yuan, a significant increase of 147.9% over the same period last year, reaching a record high. The gross profit margin of the industry was 20.9%, an increase of 2.05 percentage points, and the net profit margin was 7.5%, a significant increase of 3.32 percentage points. In the first three quarters of the chemical industry, operating income and industry profitability increased significantly, net profit to the mother was the highest point in the industry in recent decades, and the overall gross margin and net interest rate of the industry increased significantly. In terms of expense ratio, according to wind Consulting data, in the first three quarters of 2021, the four-expense ratio of the chemical industry totaled 7.35%, down 1.56 percentage points year-on-year, and the management expense ratio increased by 0.40 percentage points year-on-year to 2.91%. The sales expense ratio decreased by 0.35 percentage points to 2.30%, the finance expense ratio decreased by 0.06 percentage points to 0.87%, and the research and development expense ratio increased by 0.41 percentage points to 1.28%.

1.2. By sector: the profit of chemical raw materials sector increased the most, and the profit of rubber and plastics sector declined

The profits of chemical raw materials, petrochemical, chemical products and chemical fiber sectors increased significantly by 596.2%, 166.7%, 148.5% and 103.0%, respectively. We analyzed the income and net profit changes of the chemical (Shenwan) secondary sub-plate, and found that since the beginning of this year, the revenue growth rate of all secondary chemical sub-plates is more than 20%, of which the cumulative income of chemical fiber and chemical products plate is significantly increased by 56.2% and 47.7%, respectively. The revenue growth rate of chemical raw materials, petrochemical, plastics and rubber segments ranges from 20% to 40%. In terms of profits, the growth rate of chemical raw profits in the first three quarters of this year increased significantly by 596.2%, the growth rate of petrochemical, chemical products and chemical fibers was more than 100%, while the profits of plastics and rubber sectors declined, down 8.4% and 9.6% respectively.

1.3. The economy is falling and embracing certain growth

Since the beginning of this year, benefiting from the double good superposition of the domestic market and overseas exports, commodity prices have continued to rise, which has brought systematic improvement to the profits of chemical enterprises. On the demand side, under the impact of repeated overseas epidemics and extreme weather, the demand for some overseas chemical products has shifted to China; On the supply side, under the influence of dual-control energy consumption and dual-carbon policies, the supply of a variety of chemical production capacity is limited. Increased overseas demand, limited domestic supply, superimposed on the strong support of upstream crude oil prices, and the phenomenon of rising raw materials for most chemical products in 2021. According to wind information data, among the 418 enterprises in the chemical (Shenwan) sector (excluding ST, B shares and undisclosed new shares), the net profit of the mother in the first three quarters of this year achieved positive growth of 290, of which 43 in the first three quarters of the mother net profit growth rate of more than 500%. From a long-term logical point of view, as the overseas epidemic is effectively controlled, overseas production capacity will gradually recover, commodity prices may fall from the current high to a reasonable range, and the recent PPI and domestic demand data continue to decline, to a certain extent, also supports our view

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2. Look for investment opportunities in the chemical industry from the perspective of valuation

2.1. The overall valuation of the industry has been at the central level in the past 10 years, and the valuation of viscose, soda ash, Velen and other sectors is low

As of December 13, the overall price-earnings ratio of Shenwan Chemical sector (TTM_overall method excluding negative value) was 19.98X, and the price-to-book ratio (overall method excluding negative value) was 2.91X. In terms of price/earnings ratio, the current overall valuation level of the chemical industry is at the median level of nearly 10 years; In terms of price-to-book ratio, the current overall valuation level of the chemical industry is at a higher position in the past 10 years. In the molecular sector (excluding petrochemicals), the valuation of fluorine chemicals and refrigerants, daily chemical products, paint and ink manufacturing, other rubber products and potash fertilizer is higher, respectively, 76.47X, 62.47X, 57.92X, 46.98X and 46.31X, the valuation is more than 45 times. While viscose, spandex, nitrogen fertilizer, soda ash, chlor-alkali, Vinylon, textile chemicals, polyester, phosphate fertilizer and other 9 sectors have lower valuation, only 7.45X, 8.21X, 11.14X, 12.24X, 13.13X, 13.43X, 13.65X, 14.18X, 14.45X, respectively. The valuation is below 15 times; In addition, compound fertilizer, polyurethane, carbon black, glass fiber and other sectors are also worth noting, the P/E ratio is 15.25X, 15.79X, 17.04X, 17.60X, all lower than the average P/E ratio of the industry.

2.2. Focus on segments with better revenue and profit growth, including polyurethane, spandex, carbon black, etc

From the sub-industry level, among the 29 third-level sub-industries we track, there are 28 sub-industries with positive year-on-year growth in revenue in the first three quarters, and only the growth rate of potash industry decreased by 20.93% year-on-year. Among them, the top five sub-industries are other chemical raw materials, spandex, polyurethane, carbon black, viscose, with a growth rate of 325.83%, 108.97%, 99.31%, 92.73% and 69.86%, in addition to potassium fertilizer, chlor-alkali, tires, phosphorus chemical and phosphate, daily chemical products growth rate is in the last five industries. The growth rates were 2.95%, 10.97%, 11.38% and 13.52%, respectively. There are 26 sub-industries with positive year-on-year growth in net profit, and the top five sub-industries with positive growth are carbon black, soda ash, other chemical raw materials, phosphate fertilizer and nitrogen fertilizer, with growth rates of 1188.65%, 1065.03%, 1032.90%, 679.49% and 596.53%, respectively. The growth rate of net profit of modified plastics, tires, paint and ink manufacturing, spinning and weaving chemicals, and other rubber products is relatively backward, respectively -49.69%, -36.97%, -1.45%, 5.54%, 14.92%.

2.3. Select the best of the best, it is recommended to layout chemical fiber, agrochemical, chlor-alkali, soda ash and other plates

Based on the analysis of the valuation and profit growth of various chemical subsectors, we found that the current low valuation of chemical subsectors mainly include viscose, spandex, nitrogen fertilizer, soda ash, chlor-alkali, vinylon, textile chemical products, polyester, phosphate fertilizer, compound fertilizer, polyurethane, carbon black, glass fiber; The sub-sectors with relatively good profit growth rate include carbon black, soda ash, other chemical raw materials, phosphate fertilizer, nitrogen fertilizer, other plastic products, phosphorus chemical and phosphate, daily chemical products, spandex, chlor-alkali, polyurethane, fluorine chemical and refrigerant, viscose, etc. In summary, the focus of the plate with low valuation and good performance growth can be summarized as chemical fiber (viscose, spandex, Vinylon), agrochemical (nitrogen fertilizer, phosphate fertilizer), soda ash, chlor-alkali, polyurethane, etc. We believe that in this year's complex and volatile internal and external environment, the chemical sub-field with good profitability and low valuation will also have more attractive investment opportunities in 2022.

3. Look for investment opportunities in the chemical industry from the perspective of commodity prices

3.1. The prosperity of the industry has increased significantly, and the price of chemical products has generally increased

Since the beginning of the year, the price of chemical products has risen, urea and glyphosate have increased, and acetone and butadiene have decreased significantly. Of the 119 chemical products we track, 101 have seen their prices rise and 18 have seen their prices fall since the beginning of the year, with urea, glyphosate, international potassium chloride, yellow phosphorus and phosphoric acid among the top five. The increase was 290.22%, 203.77%, 178.31%, 170.97%, 170.83%, and the bulk products that ranked after the increase mainly included butadiene international, acetone, raw rubber, DMC, soft foam polyether, etc. Since the beginning of this year, prices have fallen 48.78%, 38.01%, 20.59%, 19.70% and 18.64% respectively. Based on the analysis of commodity prices, we find that since commodity prices have generally reached a high level in 2021, we believe that we should look for investment opportunities in 2022 from the perspective of sustainable high commodity prices at the current point of view.