A leading chemical fiber company's half-year earnings forecast has once again focused the industry's attention on the strategic value of integrated refining and petrochemicals. Hengyi Petrochemical expects a net profit attributable to shareholders of RMB 5.5 to 6.0 billion for the first half of 2026, a year-on-year increase of over 23 times. This figure reflects not merely a cyclical dividend but the culmination of years of overseas layout and full-industry-chain deep cultivation.
Core Engine of Profit Surge
The core driver of Hengyi's profit explosion is its Brunei refinery project. Unlike domestic refineries constrained by product oil oversupply and price controls, Southeast Asia's product oil market has long been in a state of tight supply-demand balance, with significantly higher spreads than in China. Leveraging its geographical advantage, the Brunei refinery enjoys tax incentives, market-based pricing, and low transportation and insurance costs. In the first half of 2026, it achieved full production and full sales, with persistently high per-ton product profitability.
From quarterly data, the net profit for Q1 reached RMB 1.995 billion, a year-on-year increase of over 37 times; Q2 grew 76% to 101% quarter-on-quarter, reaching RMB 3.5 to 4.0 billion. This accelerating quarter-on-quarter trend confirms the further release of Southeast Asian refining dividends in Q2. For domestic peers, Hengyi's case provides a clear reference: beyond the oversupplied domestic market, overseas refining assets are a key lever for navigating cycles and capturing excess profits.
Three Strategic Projects Reshape Industry Landscape
Amid significant profit growth, Hengyi is not resting on its laurels but is accelerating three major strategic projects aimed at longer-term growth logic.
- **Brunei Refinery Phase II**: With a designed capacity of 12 million tons per year, it will primarily produce high-value products like diesel, PX, and benzene, targeting completion by the end of 2028. Upon completion, the Brunei refinery's total capacity will reach 20 million tons per year, making it the only overseas capacity increment among private mega-refineries in recent years, with extremely high strategic scarcity.
- **Xinjiang Coal-to-Ethylene Glycol Project**: Plans to produce 2.4 million tons of high-quality fiber-grade coal-based ethylene glycol annually, expected to be operational by the first half of 2028. This aims to bridge the coal chemical and chemical fiber chains, reducing reliance on a single oil route.
- **Jingzhou Recycling New Materials Project**: Construction of a 300,000-ton annual capacity recycling new materials industrial demonstration project, using waste textiles instead of crude oil as raw material, with an 18-month construction period. This aligns with China's 'dual carbon' strategy and could open new profit growth points.
The implementation of these projects will give Hengyi a three-pronged raw material supply system of 'oil, coal, and textiles.' For buyers, this means Hengyi's future cost stability for products like PTA and polyester will significantly improve, potentially reducing price volatility risks.
Sustainability: Opportunities and Risks Coexist
The market is naturally concerned about whether this 23-fold profit growth can be sustained. From an industry logic perspective, the tight supply-demand balance in Southeast Asia's product oil market is unlikely to reverse in the short term, supporting high profitability from the Brunei project for the rest of the year. Meanwhile, the 'anti-involution' in the PTA and polyester sectors is showing initial results, with capacity structures substantively optimized and profit recovery showing some persistence.
However, risks cannot be ignored.
- A sharp drop in international crude oil prices would directly lead to inventory write-downs and narrowed crack spreads, eroding refining profits.
- The Brunei Phase II and coal-to-ethylene glycol projects involve massive investments and long construction periods, posing risks of delayed commissioning or financial pressure.
- Concentrating core refining capacity in a single region like Brunei exposes the company to potential policy changes or geopolitical shifts that could impact cost advantages and raw material supply stability.
- If downstream textile demand falls short of expectations, the pace of profit recovery in the polyester segment could be disrupted.
Overall, Hengyi's performance explosion is an inevitable result of years of strategic layout, not a mere cyclical pulse. Short-term high performance has strong certainty, while the medium-to-long term depends on whether the three major projects can be realized on schedule and whether the company can successfully transition from a 'refining and chemical fiber leader' to an 'integrated oil-coal-textile new materials enterprise.'