Hengyi Petrochemical's first-half net profit is expected to reach 5.5 billion to 6 billion RMB, a year-on-year increase of over 23 times. This figure is not a mere cyclical fluctuation but a concentrated release of the Brunei refinery project's profitability amid tight refined oil supply in Southeast Asia, combined with improved supply-demand dynamics in the PTA and polyester sectors.
Refinery Dividends: Brunei's Location Advantage and Earnings Elasticity
Hengyi's Q1 net profit attributable to shareholders reached 1.995 billion RMB, up 3,773.77% year-on-year. In Q2, the tight supply-demand balance in Southeast Asian refined oil markets further unlocked the Brunei refinery's earnings elasticity, with quarterly net profit estimated at 3.505 billion to 4.005 billion RMB, up 76% to 101% quarter-on-quarter.
The Brunei refinery benefits from tax incentives, market-based pricing, and low freight and insurance costs, achieving full-capacity operation with full sales. The long-term tight supply of refined oil in Southeast Asia has widened spreads, significantly boosting refining margins. As the only Chinese chemical fiber company with an overseas refinery, Hengyi's locational advantage is increasingly prominent in the current geopolitical environment.
Industry Chain Recovery: The Anti-Involution Effect in PTA and Polyester
After years of overcapacity, the supply-demand landscape in the PTA and polyester industries is undergoing substantive optimization. The industry's push against 'involution' is enabling sustainable profitability recovery. Capacity release in the nylon chain also contributed incremental profits.
The sustainability of polyester profit recovery depends on downstream textile demand. If end-user textile consumption falls short of expectations, the profit elasticity of the polyester segment may be constrained. The market's outlook for the peak textile season in the second half of the year remains unclear, and buyers should monitor inventory digestion pace.
Three Major Projects: From Refining-Polyester to 'Oil-Coal-Textile' Integration
Hengyi is accelerating three strategic projects to reduce dependence on crude oil and build profit stability across the full industry chain.
The Brunei Phase II project has a designed capacity of 12 million tons per year, producing high-value products like diesel, PX, and benzene, targeting completion by the end of 2028. The combined capacity of the Brunei refinery will then reach 20 million tons per year, creating deep industrial synergies. This is the only overseas capacity increment among private large-scale refiners in recent years.
The Xinjiang coal-to-ethylene glycol project plans to produce 2.4 million tons per year of high-quality fiber-grade ethylene glycol, expected to start production in the first half of 2028. The Jingzhou recycled materials project in Hubei aims to build a 300,000-ton-per-year demonstration facility using waste textiles instead of crude oil, with an 18-month construction period, aligning with China's 'dual carbon' strategy.
Once these projects are operational, the company will establish a unique 'oil, coal, and textile' industrial structure. However, with construction cycles of around two years for the Brunei and Xinjiang projects, they will not contribute profits in the short term and face risks of delays and funding pressure.
Risks and Outlook: Can the High Growth Continue?
The market is focused on the sustainability of this earnings surge. From an industry logic perspective, the tight supply-demand balance in Southeast Asian refined oil is unlikely to reverse quickly, supporting high profitability from the Brunei refinery for the full year. The PTA and polyester sectors have seen substantive capacity optimization, enabling sustainable profit recovery.
Key risks include: significant fluctuations in international crude oil prices could lead to inventory write-downs and narrow crack spreads, directly impacting refining margins; the large scale and long construction periods of the Brunei Phase II and Xinjiang projects pose risks of delays and capital strain; concentration of core refining capacity in Brunei exposes the company to host-country policy and geopolitical changes; and weaker-than-expected downstream textile demand could slow polyester profit recovery.