Huaxin Securities: Initiates Buy Rating on Baofeng Energy

HuaXin Securities Co., Ltd. Lu Hao and Gao Mingqian recently conducted research on Baofeng Energy and published the research report “Company Event Commentary: Leading Coal-to-Olefins Company Uses Volume to Compensate for Price, Building High Growth in Performance,” giving Baofeng Energy a “Buy” rating.

Baofeng Energy (600989)

Event

Baofeng Energy released its 2025 annual report: In 2025, the company achieved total operating revenue of 48.038 billion yuan, a year-on-year increase of 45.64%; net profit attributable to parent was 11.35 billion yuan, up 79.09% year-on-year. In Q4 2025, the company achieved operating revenue of 12.493 billion yuan, up 43.46% year-on-year, down 1.83% quarter-on-quarter; net profit attributable to parent was 2.4 billion yuan, up 33.29% year-on-year, down 25.74% quarter-on-quarter.

Investment Highlights

Leading Polyolefin Producer “Using Volume to Compensate for Price” to Drive High Growth

The company’s 2025 performance growth is mainly attributed to increased sales of polyolefin products, with the core growth driver being the capacity release of the Inner Mongolia base. The company’s Inner Mongolia project, the world’s largest single-factory coal-to-olefins plant with a capacity of 3 million tons per year, achieved full production in 2025. As a result, the company’s total olefin capacity reached 5.2 million tons per year, ranking first in China’s coal-to-olefins industry. In 2025, the polyolefin market showed a one-sided downward trend, with domestic polyethylene and polypropylene prices for the year at 8,252 yuan/ton and 7,113 yuan/ton, respectively, down 7.0% and 7.4% year-on-year. The main reason for the price pressure on polyolefin products was the industry’s new capacity additions (over 10 million tons of polyolefin capacity added within the year), leading to oversupply. In response, the company adopted a volume-to-price strategy. In 2025, the company’s polyethylene and polypropylene production reached 2.5492 million tons and 2.4752 million tons, respectively, up 125% and 110.95% year-on-year; sales volumes were 2.5346 million tons and 2.4605 million tons, respectively, up 123.27% and 111.22% year-on-year, essentially achieving full capacity and sales, driving high performance growth.

Significant Scale Effects Dilute Costs, Strong Cash Flow

Regarding expense ratios, in 2025, the company’s selling, management, financial, and R&D expense ratios were 0.26%, 2.74%, 2.37%, and 2.00%, respectively. The production and sales volume doubling from new projects led to expense dilution, with these ratios decreasing by 0.1, 0.09, 0.11, and 0.29 percentage points year-on-year. In terms of cash flow, the high growth in production and sales increased receivables, resulting in a net cash flow from operating activities of 8.939 billion yuan, an increase of 8.703 billion yuan from the same period last year.

Orderly Progress of New Projects, Continued Strengthening of Leading Position

The company’s Ningdong Phase IV 500,000-ton-per-year polyolefin project is steadily advancing and is expected to start production in 2026. At that time, the company’s total polyolefin capacity will reach 5.7 million tons per year, further strengthening its scale advantage. Additionally, leveraging the Ningdong and Inner Mongolia bases, the company has built a complete “coal-olefin-chemical” circular economy industry chain. With advantages in location, technology, and costs (investment and operating costs over 30% lower than industry peers), the company maintains profitability resilience despite industry supply-demand imbalances. After 2026, the growth rate of new polyolefin capacity additions is expected to slow, coupled with the exit of high-cost overseas capacity, potentially improving supply-demand dynamics. As a cost-competitive coal-to-olefins leader, the company will benefit from industry recovery and capacity releases, opening growth space.

Profit Forecast

We forecast the company’s net profit attributable to the parent to be 14.125 billion, 15.688 billion, and 17.405 billion yuan for 2026-2028, respectively. The current stock price corresponds to P/E ratios of 17.7x, 16.0x, and 14.4x, respectively, maintaining a “Buy” investment rating.

Risk Tips

Demand below expectations, product prices decline, industry competition intensifies.

Latest profit forecast details are as follows:

In the past 90 days, 13 institutions have issued ratings for this stock, all “Buy”; the average target price over this period is 34.38.