Key takeaway

The company currently has attributable crude oil processing capacity of 10mn tonnes, as well as production capacity of 10.2mn tonnes of PTA, 600,000 tonnes of MEG, and 15.5mn tonnes of polyester filament yarn. It is the world’s largest polyester filament yarn producer, with a global market share of over 18% and a domestic market share of over 28%. With coordinated anti-involution initiatives in both PTA and polyester filament yarn, the company has substantial upside exposure to price increases. In addition, the market previously failed to assign a reasonable valuation to the company’s 20% equity interest in Zhejiang Petroleum & Chemical. As profits in the refining and chemical segment trend upward, the company is expected to undergo a valuation re-rating.

Event

The company released its 1H26 report. Revenue reached RMB52.709bn in 1H26, up 19.36% YoY. Net profit attributable to shareholders of the parent company was RMB4.222bn, up 285.03% YoY. In 2Q26, revenue reached RMB29.347bn, up 18.63% YoY and 25.62% QoQ. Net profit attributable to shareholders of the parent company was RMB2.324bn, up 378.32% YoY and 22.48% QoQ. Investment income from associates was RMB790mn, up 363.6% YoY but down 10.92% QoQ.

Quick Take

Anti-involution initiatives continued in 2Q26, significantly improving polyester filament yarn and PTA profitability

In 2Q26, the polyester filament yarn industry continued its coordinated anti-involution initiatives. Although sales volumes declined both YoY and QoQ, finished product prices and profitability recovered significantly. Polyester filament yarn and PTA prices rose substantially both YoY and QoQ. According to the company’s operating data, average POY/FDY/DTY/PTA prices in 2Q26 were RMB7,591/RMB8,348/RMB8,930/RMB5,738 per tonne, up 26.28%/34.26%/19.55%/37.71% YoY and 21.85%/22.43%/16.35%/16.82% QoQ, respectively. The market had previously been concerned about weak polyester filament yarn production and sales amid high oil prices. However, the sales data indicate only a limited overall decline. In 2Q26, POY/FDY/DTY/PTA sales volumes were 2.2967mn/515,900/247,200/574,400 tonnes, down 10.76%/11.11%/17.43% YoY and up 41.55% YoY, respectively. QoQ, they were up 9.27% and down 2.64%/3.06%/2.45%, respectively. In addition, the company holds a 20% equity interest in Zhejiang Petroleum & Chemical. As the U.S.-Iran conflict continued and crude oil prices fluctuated at high levels, the company generated substantial investment income in 2Q26.

The equity incentive plan strengthens cohesion among key employees, while the vesting targets demonstrate confidence in the company’s development . The company also released its 2026 restricted share incentive plan. The 80 incentive recipients include key management personnel and key employees, and the grant price is RMB12.09 per share. The company also announced the vesting conditions for this equity incentive plan. Based on the company’s average net profit attributable to shareholders of the parent company for 2023 - 2025 excluding investment income from Zhejiang Petroleum & Chemical, which was RMB676mn, net profit in 2026, 2027, and 2028 must increase by 400%-500%, 440%-550%, and 480%-600%, respectively. Specifically, the company needs to achieve RMB3.38-4.056bn in 2026, RMB3.65-4.394bn in 2027, and RMB3.921-4.732bn in 2028. Based on the vesting conditions, the company is expected to achieve strong earnings growth over the next three years, demonstrating its confidence in long-term development.

Coordinated anti-involution efforts in polyester filament yarn and PTA to boost profits, with potential revaluation of the stake in Zhejiang Petroleum & Chemical. Amid a significant slowdown in supply growth and continued increases in market concentration among industry leaders, anti-involution efforts in the PTA and polyester filament yarn industries are expected to restore industry profitability to a reasonable range. The company is the world's largest polyester filament yarn producer and currently has equity-attributable capacities of 10mn tonnes of crude oil processing, 10.2mn tonnes of PTA, 0.6mn tonnes of MEG, and 15.5mn tonnes of polyester filament yarn, providing substantial earnings upside. In addition, the market previously failed to assign a reasonable valuation to the company’s 20% equity interest in Zhejiang Petroleum & Chemical. As profits in the refining and chemical segment trend upward, the company is expected to undergo a valuation re -rating.

Investment recommendation: Based on the expected recovery of chemical fiber industry profitability to a reasonable range and higher-than-expected investment income from the subsidiary Zhejiang Petroleum & Chemical, we raise our previous forecasts. We expect the company to generate revenue of RMB109.708bn/RMB113.081bn/RMB120.650bn in 2026-2028, versus our previous forecasts of RMB108.718bn/RMB112.048bn/RMB119.564bn, representing YoY growth of 16.85%/3.07%/6.69%, respectively; and net profit attributable to shareholders of the parent company of RMB7.839bn/RMB8.437bn/RMB9.097bn, versus our previous forecasts of RMB5.731bn/RMB7.231bn/RMB8.246bn, representing YoY growth of 285.62%/7.63%/7.82%, respectively. The current share price implies PE multiples of 7.6x/7.1x/6.6x, respectively. We maintain our “Buy” rating.

Risks:

(1) Unexpected fluctuations in crude oil prices: Crude oil prices are highly correlated with international political and economic conditions and are subject to significant volatility. Substantial fluctuations in crude oil prices can affect price spreads and earnings stability across the downstream industry chain, thereby impacting the company's profitability. (2) Changes in the industry competition landscape: The rapid commissioning of new polyester filament yarn capacity may lead to localized overcapacity in this product segment, intensifying industry competition and squeezing profit margins. (3) Macroeconomic fluctuations and a global economic downturn: The downstream sectors for chemical products are numerous and widely distributed, with a high correlation to macroeconomic conditions. An economic downturn may affect demand for products in the apparel industry and other sectors. (4) Weaker-than-expected implementation of anti-involution policies: The polyester filament yarn and PTA industries are implementing anti-involution measures. Weaker-than-expected implementation would have a certain negative impact on the segments' profitability during the off-season.