Changjiang business news ● Changjiang Business Daily reporter Ming Hongze
Donghua Energy (002221.SZ), which constantly promotes the industrial layout, has made heavy moves again.
On the evening of September 6, Donghua Energy announced that the company will join hands with China National Nuclear Corporation to jointly promote the high-temperature gas-cooled reactor project, and it is estimated that the investment will exceed 100 billion yuan in the next five years to jointly build a zero-carbon industrial park. The two sides have also conducted in-depth cooperation in other areas.
Donghua Energy said that the above actions will be conducive to the company’s industrial transformation and upgrading, and greatly reduce the production cost of the process.
Donghua Energy was established in 1996. After more than 20 years of development, it has become one of the top 500 Chinese enterprises. The company’s main business was once dominated by trade, and it is the largest LPG trader in the world and the largest LPG importer in China. In recent years, the company has actively implemented industrial transformation, and now it has become the largest propane dehydrogenation manufacturer in the world.
In the past 10 years, Donghua Energy has achieved a continuous increase in net profit attributable to shareholders of listed companies, but since last year, net profit has declined. In the first half of this year, the company’s net profit was only 146 million yuan, down more than 80% year-on-year.
Donghua Energy explained that geographical conflicts, overlapping epidemics, soaring raw material prices and insufficient downstream demand led to a sharp drop in net profit.
Deep binding with CNNC
A paper announcement by Donghua Energy surprised the market.
According to the latest announcement, on September 6th, Donghua Energy and China National Nuclear Corporation (hereinafter referred to as "China National Nuclear Corporation") signed the Strategic Cooperation Agreement (hereinafter referred to as "Agreement"), which is valid for 10 years.
China National Nuclear Corporation (CNNC) is a super-large state-owned key enterprise directly managed by the central government and belongs to the industry giant.
According to the agreement, the two sides will jointly promote the high-temperature gas-cooled reactor project, and it is estimated that the investment will exceed 100 billion yuan in the next five years to jointly build a zero-carbon industrial park.
In addition, the two sides will jointly establish a hydrogen energy alliance, set up a hydrogen energy research institute and a pilot plant, focus on the thermochemical hydrogen production technology route in the preparation of green hydrogen, and develop solid-state storage materials and equipment for hydrogen.
At the same time, in order to build a hydrogen energy industrial chain and effectively deepen strategic cooperation, the two sides will actively promote CNNC or its member units to become strategic investors of Donghua Energy (accounting for 5%-15% of the shares), and appoint directors to participate in the management of Donghua Energy’s board of directors, so as to create a model of mixed ownership reform of "central enterprises+private enterprises". In addition, according to the principle of "giving priority to quality and price", Donghua Energy (Ningbo factory and Zhangjiagang factory) will be provided with economic and zero-carbon power supply.
The reporter of Changjiang Business Daily found that the cooperation between Donghua Energy and China National Nuclear Corporation not only involves a joint investment of 100 billion yuan in the next five years, but also involves a strategic investment in Donghua Energy, which is deeply tied with its equity relationship and has also made specific agreements on power supply. From this, it can be seen that the two are truly deepening comprehensive cooperation.
Investing 100 billion yuan in the next five years, if it is an enterprise of Donghua Energy, it is not generally difficult.
By the end of June this year, Donghua Energy’s total assets were 36.957 billion yuan, with a total market value of 15.748 billion yuan. With such a volume, it’s hard to imagine that you want to invest hundreds of billions. Holding hands with China National Nuclear Corporation, Donghua Energy will become impossible.
For the above cooperation, Donghua Energy said that the synergy effect on the company’s existing business is significant, which is conducive to the transformation and upgrading of the industry and is expected to greatly reduce the production cost of the process. If both parties cooperate on specific projects within the scope agreed in this agreement, it will have a positive impact on the company’s future performance.
Continuous large-scale investment is under financial pressure
Not only is it difficult to achieve a single investment of 100 billion yuan, but at present, Donghua Energy is also under greater financial pressure.
The semi-annual report shows that as of the end of June this year, Donghua Energy’s asset-liability ratio reached 66.43%. At the end of the period, although the company had 9.037 billion yuan of monetary funds on its books, its short-term debt reached 12.788 billion yuan, which showed obvious short-term debt repayment pressure.
Donghua Energy, originally engaged in trade business, is the largest LPG trader in the world and the largest LPG importer in China. In recent years, the company has actively implemented industrial transformation, and now it has become the largest propane dehydrogenation manufacturer in the world. Its industrial transformation is mainly implemented through investment construction and extended mergers and acquisitions.
In 2015, the first phase project of Zhangjiagang Yangzijiang Petrochemical Co., Ltd. was put into production, which is an important symbol of Donghua Energy’s strategic transformation, upgrading and layout of alkane resources comprehensive utilization industry. In that year, the production facilities of the 660,000-ton propane dehydrogenation to propylene project and the 400,000-ton/year polypropylene project were basically produced at full capacity.
Zhangjiagang Yangzijiang Petrochemical Department was established by Donghua Energy in 2011 with a capital contribution of 560 million yuan, with a shareholding ratio of 56%. In May 2015, the company acquired the remaining 44% equity at a price of 500 million yuan. From 2017 to 2019, Donghua Energy also successively acquired 100% equity of Baoying Jinfan, 100% equity of Polyentang Electronics, 100% equity of Tiansheng Port, and partial equity of Ningbo New Materials to carry out industrial transformation layout.
In 2019, the company announced that it would invest 16.67 billion yuan to build a comprehensive utilization project (Phase I) of alkane resources in Maoming. In order to strengthen the comprehensive utilization of hydrogen energy, in July last year, the company threw out acrylonitrile and its supporting projects to extend the industrial chain, with an estimated investment of more than 6.5 billion yuan.
At present, the company has three production bases in Zhangjiagang, Ningbo and Maoming, and some production capacity is still under planning and construction.
Donghua Energy said that the company will build the world’s largest olefin industrial base based on green chemicals, and plan 10 million tons of polypropylene and multi-copolymerization.
In recent years, the company’s investment cash flow has continued to flow out. From 2020 to the first half of this year, their net outflows were 1.054 billion yuan, 2.852 billion yuan and 1.911 billion yuan respectively.
Because of this, the company bears great financial pressure. In the next five years, the company and China National Nuclear Corporation will jointly invest 100 billion yuan, which will inevitably aggravate its financial pressure.
At one time, Donghua Energy showed strong profitability. In 2016, the company realized a net profit of 470 million yuan. From 2017 to 2020, its net profit increased slowly, but both exceeded 1 billion yuan. In 2021, its net profit dropped by 5.82% to 1.14 billion yuan.
However, in the first half of this year, the company’s performance fell sharply. The semi-annual report shows that its operating income was 15.192 billion yuan, up 6.54% year-on-year, the corresponding net profit was 146 million yuan, and the net profit after deducting non-recurring gains and losses was 95 million yuan, down 80.60% and 86.53% year-on-year.
Donghua Energy explained that geopolitical conflicts triggered international turmoil and superimposed global epidemics, which led to a sharp rise in propane prices. Downstream, due to the epidemic, construction was insufficient, and performance dropped significantly due to the squeeze at both ends.
Will Donghua Energy’s ability to resist risks be enhanced by accelerating industrial layout and financial pressure?
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