The top Middle Eastern tycoon squeezed into the circle of friends of China's richest woman. Netizens: Is it reliable to buy 100,000 shares for retirement?

Saudi Aramco's cooperation with Hengli Petrochemical cannot be compared to Warren Buffett's purchase of BYD shares in the same dimension, but it is not ruled out that the main force may suppress and sweep the goods technically.

Sixteen years ago, the stock god Buffett's purchase of 10% of BYD's shares was seen as a historic turning point for the latter. Sixteen years later, the world's largest oil producer and the sixth largest oil refiner, Saudi Arabian Oil Company (referred to as "Saudi Aramco"), with a market value of nearly $2 trillion, is preparing to acquire a stake in a Chinese private refining enterprise.

On April 22, Hengli Petrochemical Co., Ltd. (referred to as Hengli Petrochemical) announced that its controlling shareholder, Hengli Group, had discussed potential acquisition of 10% of Hengli Petrochemical's shares with Saudi Aramco and signed a memorandum of understanding on the proposed transaction.

Although the memorandum is not binding, based on Saudi Aramco's recent actions in the Chinese market, the probability of successful cooperation is extremely high. Based on the current stock price of Hengli Petrochemical, the above-mentioned equity investment by Saudi Aramco is estimated to be close to 11 billion yuan and will become the sixth largest shareholder of Hengli Petrochemical.

It is worth mentioning that in March 2023, Saudi Aramco announced its intention to acquire a 10% stake in Rongsheng Petrochemical for 24.6 billion yuan, with a premium of nearly 90%. Perhaps stimulated by this news, although the stock price of Rongsheng Petrochemical has been in a downward trend, it also surged by over 30% within 4 days.

Will Hengli Petrochemical follow suit? Will it even embark on a spectacular bull market because of this?

In 2022, Hengli Petrochemical "emerged out of nowhere" - on August 30 of that year, the Forbes real-time rich list ranked the Fan Hongwei family as the 118th richest in the world, with a wealth of 15.1 billion US dollars (approximately 104.19 billion yuan), surpassing the Yang Huiyan family of Country Garden and Wu Yajun of Longfor Group, becoming the richest woman in China. That year, Hengli Group, the parent company of Hengli Petrochemical, also received the honor of being listed in the Top 500 Chinese Private Enterprises.

Before that, for many young investors, this petrochemical refining and chemical enterprise was relatively unfamiliar. There are many introductions online about the development history of Hengli Petrochemical and the entrepreneurial history of Fan Hongwei and his wife, so I won't go into detail here. In short, the Fan Hongwei couple continuously expanded upstream in the industrial chain from the textile industry and operated in the field of chemical industry for many years.

Now, the industries covered by the two of them in Hengli Group include refining, petrochemicals, and new polyester materials, creating a complete industrial chain of "crude oil - aromatics, ethylene - purified terephthalic acid (PTA), ethylene glycol - polyester (PET) - civil silk and industrial silk, engineering plastics, film - textiles", and it owns listed companies Hengli Petrochemical, Songfa Co., Ltd., and the New Third Board company Tongli Tourism.

From the financial reports, before 2015, Hengli Petrochemical's net profit often showed losses, but starting from 2015, its net profit began to soar year by year, with a net profit of over 600 million yuan that year, reaching 1.1 billion yuan in 2016... and the net profit exceeded 10 billion yuan in 2019. After that, it continued to grow rapidly, reaching the current historical peak of 15.531 billion yuan in 2021, and the net profit in 2022 was 2.318 billion yuan, a sharp drop of 85.07% compared to the previous year. In 2023, it began to rebound rapidly to 6.905 billion yuan.

However, a careful review of Hengli Petrochemical's financial report also reveals a detail: in 2019, Hengli Petrochemical's net profit soared from 3.3 billion in the previous year to over 10 billion, and its trading financial assets also surged in that year, increasing from over 40 million in the previous year to 2.632 billion.

Subsequently, although Hengli Petrochemical's funds in financial management have been decreasing year by year, it still had 299 million yuan by 2023. Obviously, Hengli Petrochemical's enthusiasm for financial management is still quite high.

02

It is worth mentioning that Hengli Petrochemical has long been plagued by high levels of debt. Hengli Petrochemical's financial report shows that before 2017, its short-term debt was around 5.2 billion, but in 2017, it soared to 21.654 billion, with current liabilities reaching 33.782 billion, while its monetary funds were 5.28 billion that year.

The worrying financial debt situation has persisted to the present. In 2023, Hengli Petrochemical's monetary funds amounted to 20.469 billion, but its short-term borrowings reached a high of 66.995 billion, and non-current liabilities due within one year were 13.498 billion. Obviously, monetary funds are far from sufficient to cover short-term debt, and the capital chain is under great strain.

This is not good news, as there are numerous examples of problems arising from high debt, with some real estate companies being the most typical. Hopefully, Hengli Petrochemical can attract enough attention.

The latest financial report shows that in the first quarter of 2024, the company achieved a total operating income of 58.412 billion, a year-on-year increase of 4.02%; the net profit attributable to shareholders of the listed company was 2.139 billion, a year-on-year increase of 109.8%. Regarding the main reasons for the change in net profit, Hengli Petrochemical stated that the company's leading products, such as PX and pure benzene in the aromatic hydrocarbon chain, maintained a relatively high business cycle, and the profitability of coal chemical products such as acetic acid, adipic acid, and liquid ammonia was good.

From the sustained performance of Hengli Petrochemical's net profit, as a cyclical enterprise, its profit is mainly affected by changes in upstream costs and the prosperity of downstream demand. It is still difficult to determine the recovery to an upward cycle in the petrochemical industry. In this case, Hengli Petrochemical's performance will also face certain pressure.

According to the research report of TF Securities, due to the drag of the olefin prosperity, Hengli Petrochemical's attributable net profit forecast for 2024 and 2025 has been lowered from 13 billion and 16.3 billion respectively to 9.5 billion and 12 billion, and the company is given a forecast of 13 billion for attributable net profit in 2026.

In other words, although Hengli Petrochemical's performance in the next two to three years shows signs of improvement, it is still a distance away from the peak period of 2021.

Looking at the cooperation between Saudi Aramco and Hengli Petrochemical, it is only a part of the former's presence in the Chinese market. The logic behind this, as Saudi Aramco has long made public, is to ensure buyers of oil and the production capacity of petrochemical products through small equity transactions. Saudi Aramco believes that even if the portion of oil used for fuel in the global energy transition may decrease in the future, the demand for petrochemical products such as plastics will continue to grow in the coming decades.

Currently, Saudi Aramco has announced plans to acquire small stakes in Rongsheng Petrochemical, Shandong Yulong Petrochemical, and the Jiangsu refining giant Dongfang Shenghong. In other words, the cooperation between Saudi Aramco and Hengli Petrochemical cannot be compared on the same dimension as Warren Buffett's purchase of BYD shares in the past.

However, some investors still hold a bullish view on the cooperation between Saudi Aramco and Hengli Petrochemical. Some netizens said, "Buy 100,000 shares for retirement." Others directly stated a target price of 80 yuan, and some even said, "This stock will not be less than 30 this year, I guarantee it."

Technically, on April 22, Hengli Petrochemical announced that its stock price opened high and then fell, dropping by 3.23%. The next day, it opened high and then fell again, ultimately dropping by 2.31%. Two long black lines were formed on the daily K-line, and even the lower shadow of the long black line on the 23rd retraced the 20-day moving average. Considering that Hengli Petrochemical has risen by nearly 50% recently, there is a technical demand for a retracement to the 250-day moving average, which is the 60-week line, but the extent of the decline may be limited. It is not ruled out that some major players may be deliberately suppressing and collecting chips here, so everyone should pay close attention to the extent of the pullback.

[This article is for communication purposes only and is not investment advice. Please be aware of investment risks.]