“Investor Network” Zhang Wei

At the beginning of the new year, there was a big move in the domestic petrochemical industry. On January 2, Rongsheng Petrochemical Co., Ltd. (hereinafter referred to as “Rongsheng Petrochemical”, 002493.SZ), a leading private petroleum refining company, issued an announcement stating that it had signed a “Memorandum of Understanding” with Saudi Aramco Oil Co., Ltd. (hereinafter referred to as “Saudi Aramco”).

According to the Memorandum of Understanding, the two sides are discussing matters such as Rongsheng Petrochemical's proposed acquisition of 50% of Saudi Aramco's Jubail Refining and Chemical Company (“SASREF”) and Saudi Aramco's potential acquisition of up to 50% of Ningbo Zhongjin Petrochemical Co., Ltd. (hereinafter referred to as “CICC”).

In another announcement issued on the same day, Rongsheng Petrochemical stated that it plans to invest 67.5 billion yuan to build the Jintang New Materials Project to further extend the high-end chemical industry chain.

According to financial data, as of the end of September 2023, Rongsheng Petrochemical's total debt reached 274.1 billion yuan, with the company's monetary capital of 32.082 billion yuan and net operating cash flow of -225 billion yuan during the same period. How Rongsheng Petrochemical raises funds to promote related projects has also attracted market attention.

In-depth cooperation with Saudi Arabia, Aramco and the United States

According to the official website, Rongsheng Petrochemical is mainly engaged in the production and sale of petrochemical and chemical fiber products, and has laid out a complete industrial chain from upstream refining, aromatics, and olefins to downstream refined terephthalic acid, MEG, polyester, and polyester yarn.

Saudi Aramco, which “joined forces” with Rongsheng Petrochemical this time, also had a big impact.

According to Baidu Encyclopedia, Saudi Aramco is the world's largest oil producer and the world's sixth largest oil refiner, and has the world's largest onshore oil fields and offshore oil fields. According to the 2023 Fortune Global 500 ranking, Saudi Aramco ranked second with revenue of US$603.651 billion, after Walmart (US$61,289 billion).

According to the announcement, the cooperation method between Rongsheng Petrochemical and Saudi Aramco is to cross-hold shares and acquire shares in each other's companies. Rongsheng Petrochemical said that the “Memorandum of Understanding” is a preliminary intention reached between the two sides through negotiations. The two sides will then further discuss the cooperation agreement, and their final investment decisions will be made after the two parties have completed due diligence investigations on SASREF and CICC.

In fact, prior to this announcement, Rongsheng Petrochemical had already cooperated with Saudi Aramco. Beginning in March 2023, Rongsheng Petrochemical and Saudi Aramco have successively signed a number of cooperation agreements, such as the “Strategic Cooperation Agreement”, “Crude Oil Storage Framework Agreement”, and “Technology Sharing Framework Agreement”, all of which are currently being implemented.

Furthermore, Saudi Aramco is an important shareholder of Rongsheng Petrochemical. According to the announcement, in March 2023, Rongsheng Holdings, the controlling shareholder of Rongsheng Petrochemical, transferred its 1,013 billion shares to Aramco Overseas, a wholly-owned subsidiary of Saudi Aramco. After the transaction was completed, Saudi Aramco held 10% of Rongsheng Petrochemical's shares, making it the second largest shareholder.

Where did the money for the 67.5 billion project come from

While officially announcing deep cooperation with Saudi Aramco, Rongsheng Petrochemical also announced plans to invest 67.5 billion yuan to build a new materials project in Jintang. According to reports, the implementing entity of the Jintang New Materials Project is Rongsheng New Materials (Zhoushan) Co., Ltd.

Rongsheng Petrochemical said that according to estimates from the research report, after completion, the Jintang New Materials Project is expected to achieve an average annual revenue of 86.877 billion yuan, annual net profit of 15.463 billion yuan, a post-tax financial internal return of 24.81%, and a payback period of 6.11 years after tax (including a construction period of 3 years).

Expectations are very good, but the actual financial data also made the public question whether Rongsheng Petrochemical can push for the completion of such a major project.

According to the three-quarter report, as of the end of September 2023, Rongsheng Petrochemical's short-term loans were 54.983 billion yuan, an increase of 108.51% over 26.370 billion yuan in the same period in 2022. The reason for the increase was “an increase in short-term bank loans in the current period.”

In addition, Rongsheng Petrochemical's non-current liabilities due in one year were 23.219 billion yuan, long-term loans of 134.611 billion yuan, total debt of 274.1 billion yuan, and a balance ratio of 74.24%. The total debt and balance ratio were the highest in the three quarterly reports in recent years.

On the other hand, Rongsheng Petrochemical's cash flow is not sufficient.

As of the end of September 2023, Rongsheng Petrochemical's monetary capital was only 32.082 billion yuan. In the same period, net operating cash flow was 2.25 billion yuan, which is a big contrast with the 32,679 billion yuan at the end of September 2022. Rongsheng Petrochemical said that the reason for the change in operating cash flow from positive to negative is that “payments for raw materials purchased in the current period have increased.”

Regarding the funding source of 67.5 billion yuan required for the Jintang New Materials Project, Rongsheng Petrochemical stated in the announcement that it “borrowed money from the company's own capital and banks.” In the first nine months of 2023, Rongsheng Petrochemical's net financing cash flow reached 38.797 billion yuan, an increase of 668.24% over -6.828 billion yuan in the same period in 2022, “mainly due to the year-on-year increase in new bank loans in the current period.”

However, when its own cash flow is tight, can Rongsheng Petrochemical, which already has a high debt ratio, borrow money from banks to develop the Jintang New Materials Project? We will continue to pay attention.

Stock prices fell under pressure on the company's performance

Behind Rongsheng Petrochemical's continuous promotion of major projects, the company's operating performance is under pressure and stock prices are weak.

The development process shows that Rongsheng Petrochemical started with a small weaving factory and eventually formed a complete upstream and downstream petrochemical industrial chain through continuous upstream expansion. Due to rapid economic growth and the impact of increased demand for petrochemical products from all aspects of society, Rongsheng Petrochemical's performance has also experienced a period of explosive growth in recent years.

According to Wind data, Rongsheng Petrochemical's revenue increased from 82.5 billion yuan in 2019 to 289.09 billion yuan in 2022. However, after Rongsheng Petrochemical's net profit to mother increased from 2.207 billion yuan in 2019 to 13.236 billion yuan in 2021, it fell sharply in 2022, to only 3.34 billion yuan.

If you only look at the three-quarter report, the decline in Rongsheng Petrochemical's profit is even more obvious. In the first nine months of 2023, Rongsheng Petrochemical's revenue reached 239.05 billion yuan, and net profit for the same period was only 108 million yuan, a serious decline from the previous 2021 and 2022 three-quarter reports of 10.132 billion yuan and 5.451 billion yuan.

It is worth noting that Rongsheng Petrochemical's deducted non-net profit for the first three quarters of 2023 was -130 million yuan. Since its launch in November 2010, Rongsheng Petrochemical's third quarterly report on non-net profit deducted was negative for the first time.

Rongsheng Petrochemical's three-quarter report “withholding negative” was negative for the first time

In the secondary market, Rongsheng Petrochemical's stock price has been falling all the way in recent years. Wind data shows that in early 2021, Rongsheng Petrochemical fluctuated downward after rising to a high of 30.86 yuan/share. As of the close of January 4, Rongsheng Petrochemical closed at 10.29 yuan/share, with a market value of 104.192 billion yuan.

It is worth mentioning that when Saudi Aramco bought 1,013 billion shares of Rongsheng Petrochemical in March 2023, the corresponding total transaction amount was about 24.4 billion yuan. If calculated at the closing price on January 4 (10.29 yuan/share), Saudi Aramco's investment has already “cut back”, with losses exceeding 14 billion yuan.

After Rongsheng Petrochemical's two announcements were issued, the agency generally expressed optimism about them. For example, Tianfeng Securities believes that with cooperation with Saudi Aramco and the accelerated layout of the Jintang New Materials Project, Rongsheng Petrochemical will make every effort to create a competitive advantage in new materials and further provide the company's comprehensive competitive strength. Statistics show that since January 2, a total of 9 brokerage firms have published research reports on Rongsheng Petrochemical, and all have given a “buy” rating. (Produced by Thinking Finance) ■