Dongfang Securities: Industry-wide efforts to promote recovery in prosperity, the polyester bottle chip industry is expected to recover ahead of schedule

According to the Zhitong Finance APP, Dongfang Securities has released a research report stating that recent news reports indicate that four major companies, which occupy the vast majority of polyester bottle chip production capacity, will successively implement production reduction plans from the end of June to early July. Although the market has not reacted positively to this action, the firm believes that the production reduction plan has a high likelihood of success and is expected to drive a significant rebound in the performance of industry companies. The firm believes that the prosperity of the polyester bottle chip industry is expected to accelerate its recovery with the joint efforts of the industry. Companies with certain cost advantages are expected to show better profit elasticity, and it is recommended to pay attention to leading companies in the industry, such as Wankai (301216.SZ, Buy), CRCCHEM (301090.SZ, Not Rated), and SFX (600370.SH, Not Rated). The main points of Dongfang Securities are as follows: Collective production reduction is expected to drive accelerated industry recovery Although the polyester bottle chip industry has a simple industrial chain and low technical barriers, the certification requirements of consumer clients have maintained a good industry pattern over the past few years. Before 2022, the CR4 concentration in the industry was around 65%, but after experiencing the peak of prosperity in 2022 and a significant expansion of production capacity, the CR4 share has increased to over 75%. The good industry pattern has improved the success rate of self-rescue through production reduction and avoided the risk of long-term pattern destruction after short-term recovery. At the same time, due to factors such as scale, supporting facilities, and management, there is a significant divergence in the operating conditions of companies, whether large or small. From the financial results, some large companies are almost facing cash flow losses in 2024, and there is no possibility of a quick turnaround under normal circumstances. Therefore, the firm believes that the likelihood of successful self-rescue through production reduction in this industry is high, as self-rescue is not aimed at further paving the way for recovery, but rather to avoid falling into an abyss by taking a step back. Excess capacity has been largely digested After 2022, driven by the peak of industry prosperity and a large number of newly approved production capacities by the state, polyester bottle chip production capacity has increased significantly. It has risen from about 12 million tons at the end of 2022 to about 22 million tons currently, an increase of nearly 10 million tons, with a growth rate of nearly 80%. The firm originally estimated that with a domestic demand growth rate of 6% and an external demand growth rate of 3%, the industry would not achieve basic supply-demand balance until 2028. However, the rapid growth of new business formats such as tea shops and fresh milk after 2022 has significantly boosted domestic demand, and the instability of overseas manufacturing capacity has opened up greater space for exports from China, leading to a large digestion of new polyester bottle chip production capacity in 2023-2024. The firm estimates that the balance point, which was originally expected to be reached in 2028, is still about 3.4 million tons away, which is exactly equivalent to the scale of the planned production reduction in this industry. If the production reduction can be implemented, the profitability of industry companies is expected to recover rapidly. Subsequently, with normal demand growth, the industry is also expected to smoothly pass through the bottom of this cycle and welcome a new prosperity. Risk Warning Production reduction actions may fall short of expectations; macroeconomic fluctuations; risks related to changes in measurement assumptions affecting the results; potential omissions in statistics regarding new capacity, exits, and long-term shutdowns