Debang Securities: Key meeting releases positive signals, optimistic about the recovery of the chemical industry.

Dabang Securities released a research report stating that the overall tone of "seeking progress while maintaining stability" for next year's economic work has been determined, and the direction of economic development for next year is clear. Looking at the direction of policy efforts, attention should be paid to three main lines of investment in the chemical industry: (1) At the beginning of a new cycle in the chemical industry, trends of supply and demand improvement are confirmed. (2) Focusing on regional development strategies, emphasizing the opportunities of the large-scale development in the west. (3) Leading development with technological innovation, embracing new quality production forces in the chemical industry. Event: Recently, the meetings of the Central Political Bureau of the Communist Party of China and the Central Economic Work Conference were held successively, focusing on economic work for 2025 to steer China's economy towards high-quality development. The main points of Dabang Securities are as follows: Main Line 1: At the beginning of a new cycle in the chemical industry, the trend of supply and demand improvement is confirmed. Demand side: Expansion of domestic demand and stable property market are expected to boost demand for chemical products. The political bureau meeting in December, compared to September, further advanced at the macro level. Monetary policy changed from 14 years of prudent stability to appropriately loose, and fiscal policy shifted from active to more active, proposing for the first time "extraordinary counter-cyclical adjustments," fully demonstrating the central government's determination to promote the recovery and improvement of the economy. Looking at the direction of policy efforts, the meeting's policy statements prioritize expanding domestic demand before technological innovation development and clearly indicate the need to vigorously boost consumption, stabilize the property and stock markets, prevent and resolve risks in key areas, and continue injecting confidence into the market. Considering the effects of previous policy boosts, real estate policies have been continuously strengthened since mid-2023, and there are signs of a stabilization and warming in the real estate market transactions. In the first three quarters of 2024, the sales area and sales volume of new commercial housing nationwide decreased by -17.1% and -22.7% respectively compared to the same period last year, narrowing by 1.9 and 2.3 percentage points from the first half of the year. Continued efforts such as the policy of replacing old with new in the consumption sector have led to significant growth in the consumer markets of home appliances, furniture, electronic equipment, and automobiles in the third quarter, and macro-level consumption expenditure for the whole year is expected to significantly exceed the level of 70 trillion yuan in 2023. Considering that macro policies in 2025 will be more active, with the stabilization and recovery of the real estate market and the stimulation of consumption of household appliances and automobiles, demand for related chemical products is expected to continue to grow. Supply side: Cracking down on "inward spiral" harmful competition will help optimize the supply side structure. Following the proposal at the July political bureau meeting to strengthen industry self-discipline and prevent "inward spiral" harmful competition, the Central Economic Work Conference further emphasized the need to comprehensively crack down on "inward spiral" harmful competition and regulate local government and enterprise behaviors. Considering that the chemical industry is a capital-intensive industry requiring project approvals through multiple stages such as project approval, environmental impact assessment, safety assessment, there may be greater operational space and better realization effects in curbing inward spirals' constraints on the supply side. Considering that the current cycle of chemical plant expansion has been coming to an end since 2021, with the year-on-year growth rates of capital expenditure, construction projects, and fixed assets in the chemical industry each showing a downward turning point in 2021, 2022, and 2023. Capital expenditures have been negative for four consecutive quarters. With expectations of constraints on harmful competition at the national level in the future, the chemical industry may usher in a new round of supply-side reforms, and the domestic supply side is expected to significantly improve marginally. The direction of supply and demand improvement in the chemical industry has been clear, and blue-chip stocks with historical cycle verification and performance resilience are expected to lead the rebound. Focus on: Ningxia Baofeng Energy Group, Wanhua Chemical Group, Shandong Hualu-Hengsheng Chemical, Satellite Chemical. Main Line 2: Focusing on regional development strategies, emphasizing the opportunities of the large-scale development in the west. The Report of the 20th National Congress of the Communist Party of China proposed to promote regional coordinated development. Since 2023, the Central Political Bureau has reviewed several heavyweight documents related to regional economic development, and this political bureau meeting once again clarified the development direction of regional strategies, emphasizing the need to increase the intensity of implementing regional strategies, enhance the vitality of regional development, and the policy focus may first move towards regions with new positioning. The western region plays a vital role in the overall reform and development stability of the country, and the western development is a major strategic decision made by the central government, which is expected to receive further policy support in the future. Specifically, the western region is an important hub connecting Central Asia and West Asia in the "Belt and Road," with abundant energy reserves, coal, water resources, and other development potentials. The responsibilities of ensuring China's energy security lie with the western region. In XINJIANG, it is expected that coal production will be mass-produced during the 13th Five-Year Plan period, and XINJIANG is expected to become a strategic resource base for my country; at the same time, policies vigorously promote the development of coal chemical industry in XINJIANG, with an expected investment of 939.571 billion yuan by 2028 for key areas such as coal, coal power, coal chemical, oil and gas production and processing, and new energy development. In TIBET, the Yarlung Zangbu River's water project with over 1 trillion yuan is included in the Tibet Autonomous Region's 14th Five-Year Plan and the 2035 Vision Outline. The installed capacity of the Motuo hydropower station will reach 60 million kilowatts, with an annual average generating capacity of 300 billion kilowatt-hours, equivalent to "3 Three Gorges." Benefiting from the western development infrastructure and water demand, focus on: Explosives: Exp. CO., LTD, Anhui Jiangnan Chemical Industry, Guangdong Hongda Holdings Group, Sichuan Yahua Industrial Group, Xinjiang Xuefeng Sci-Tech, Hubei Kailong Chemical Group; Chemical engineering companies: Shandong Sunway Chemical Group, China National Chemical Engineering, East China Engineering Science and Technology, SINOPEC SEG; Xinjiang resource-based enterprises: Guanghui Energy, Ningxia Baofeng Energy Group, Hubei Yihua ChChemical Industry, Xinjiang Tianfu Energy, Xinjiang Tianye.Main Line Three: Technological Innovation Leads Development, Embracing the New Productivity of Chemical Industry. As a key focus and internal requirement to drive high-quality development, new productivity remains one of the important directions for future policies. The Central Economic Work Conference in December once again emphasized the need for technological innovation to lead the development of new productivity. Compared to the mention of artificial intelligence, bio-manufacturing, commercial space flight, low-altitude economy, quantum, life sciences, and many other specific industries in 2023, this conference only mentioned "artificial intelligence +", reflecting the country's emphasis on the development of related industries. Artificial intelligence, as a core force in cutting-edge technology, may see the government continue to increase financial subsidies for related research projects in the coming year, specifically supporting key technological research and development, talent cultivation, and infrastructure construction. The industry is expected to enter a period of high-speed innovation and development, thereby boosting demand for upstream chemical-related materials. Focus Areas: AI Materials: Jinan Shengquan Group Share Holding, Sichuan Em Technology, Novoray Corporation; PAEK Materials: Jilin Joinature Polymer, Shandong Kaisheng New Materials, Sino-High, Shenzhen WOTE Advanced Materials. In addition, in the context of the gradual progress towards carbon neutrality, green productivity plays an important role in promoting the development of new productivity. Currently, the global carbon reduction situation remains severe, with the aviation industry as the second largest source of greenhouse gas emissions in the transportation sector. The necessity and urgency of carbon reduction in aviation are becoming increasingly prominent. Sustainable fuels such as SAF are seen as key in reducing emissions in aviation. Focus Areas: SAF: Zhejiang Jiaao Enprotech Stock, Beijing Haixin Energy Technology, Penyao Environmental Protection, Longyan Zhuoyue New Energy, Shenzhen Lions King Hi-Tech. Risk Warning: Policy measures falling short of expectations, downstream demand falling short of expectations, project progress falling short of expectations, macroeconomic downturn risks.