Bank of China International: Basic chemical industry landscape rebounds in the first quarter, oil and petrochemical profits improve.

CICC International released a research report stating that considering the near end of the current round of industry expansion, measures such as "dual carbon" and "anti-inner loop" are expected to catalyze the industry's profit bottom, while new materials are benefiting from the rapid development of downstream demand, which is expected to usher in a new round of high growth. In the long term, the chemical industry chain's global market share and competitiveness continue to improve, maintaining an industry rating of "stronger than the market". Recommended investment themes in the medium and long term: 1. With the continued background of geopolitical conflicts, oil prices are maintained at a high level, high-quality petrochemical and coal chemical assets are expected to undergo value re-evaluation; 2. The global market share and competitiveness of the chemical industry continue to improve, with industry leaders showing operational resilience, deploying in new materials and other areas to enhance competitiveness, and potentially experiencing both performance and valuation increases against the backdrop of industry prosperity; 3. Continuous catalysts such as "dual carbon" and "anti-inner loop", focusing on sub-industries where supply and demand patterns continue to improve, including refining, polyester, dyes, organosilicon, pesticides, refrigerants, and phosphate chemicals; 4. Rapid development in downstream industries, with broad development prospects for companies in the new materials sector. CICC International's main points are as follows: In Q1 2026, the revenue and performance of the basic chemical industry increased year-on-year In Q1 2026, the basic chemical industry achieved a total operating income of 605.851 billion yuan, a year-on-year increase of 9.26%; achieving a net profit attributable to the parent company of 39.285 billion yuan, a year-on-year increase of 13.41%. The industry's gross profit margin and net profit margin were 17.15% and 6.88%, respectively, an increase of 0.55 and 0.40 percentage points, respectively, compared with Q1 2025. Most sub-industries within the basic chemical industry saw an increase in operating income year-on-year Among the 33 sub-industries in the basic chemical industry, 29 sub-industries achieved positive growth in operating income in Q1 2026 compared to Q1 2025, with 13 sub-industries showing growth rates exceeding 10%. The sub-industries of potassium fertilizer, polyurethane, and fluorine chemical saw the highest revenue growth rates, with year-on-year growth rates of 70.80%, 24.69%, and 23.06%, respectively. The revenue of the remaining 4 sub-industries decreased year-on-year, with the sub-industries of nylon and soda ash showing the largest decrease, with year-on-year declines of 9.91% and 4.40%, respectively. Sub-industries such as adhesive tapes, film materials, and potassium fertilizers saw significant improvements in net profit attributable to the parent company Among the 33 sub-industries, 20 sub-industries saw year-on-year growth in net profit attributable to the parent company in Q1 2026, with sub-industries such as adhesive tapes, film materials, potassium fertilizers, nitrogen fertilizers, and textile chemical products seeing year-on-year increases of 809.82%, 275.17%, 122.75%, 76.13%, and 71.06%, respectively. Thirteen sub-industries saw a year-on-year decrease in net profit attributable to the parent company, with nylon, carbon black, other rubber products, titanium dioxide, and inorganic salts showing the largest declines at 83.88%, 72.36%, 64.74%, 62.08%, and 49.27% year-on-year, respectively. Sub-industries that saw both revenue and net profit attributable to the parent company increase year-on-year in Q1 2026 include potassium fertilizers, polyurethane, fluorine chemical, textile chemical products, film materials, compound fertilizers, polyester, adhesive tapes, other plastic products, adhesives and tapes, rubber additives, military explosives, other chemical fibers, spandex, pesticides, coal chemical industry, modified plastics, nitrogen fertilizers, other chemical raw materials, phosphatic fertilizers, and phosphate chemicals. By the end of Q1 2026, the amount of construction projects in progress within the basic chemical industry continued to decrease year-on-year By the end of Q1 2026, the basic chemical industry had 306.582 billion yuan worth of construction projects in progress, a decrease of 15.15% year-on-year. Among the 33 sub-industries, the sub-industries that saw a significant increase in construction projects in progress year-on-year in Q1 2026 were soda ash (+56.57%) and carbon black (+46.07%), while the sub-industries that saw a significant decrease were other rubber products (-69.47%) and other plastic products (-65.04%). By the end of Q1 2026, the fixed assets of the basic chemical industry were 1,509.002 billion yuan, an increase of 11.46% year-on-year, with a continuously decreasing growth rate. In Q1 2026, the petroleum and petrochemical industry saw a slight decrease in revenue, but an improvement in performance In Q1 2026, the petroleum and petrochemical sector achieved a total operating income of 1,878.224 billion yuan, a decrease of 2.86% year-on-year; achieving a net profit attributable to the parent company of 120.181 billion yuan, an increase of 14.57% year-on-year. In Q1 2026, the gross profit margin and net profit margin of the petroleum and petrochemical industry were 22.19% and 6.98%, respectively, an increase of 2.96 and 1.22 percentage points, respectively, compared to Q1 2025. The return on equity (diluted) of the petroleum and petrochemical industry in Q1 2026 was 3.15%, an increase of 0.33 percentage points from Q1 2025. Construction projects in progress within the petroleum and petrochemical industry saw a year-on-year decrease By the end of Q1 2026, the construction projects in progress within the petroleum and petrochemical industry amounted to 708.448 billion yuan, a decrease of 4.28% compared to the end of Q1 2025. By the end of Q1 2026, PetroChina, China Petroleum & Chemical Corporation, and CNOOC Limited had construction projects in progress amounting to 216.705 billion yuan, 202.613 billion yuan, and 156.588 billion yuan, with year-on-year changes of -0.64%, -1.97%, and -0.57%, respectively. The three companies' construction projects in progress accounted for 81.29% of the industry's total. Recommendations: PetroChina, CNOOC Limited, Satellite Chemical, Baofeng Energy, Wanhua Chemical Group, Shandong Hualu-Hengsheng Chemical, Zhejiang Nhu, China Petroleum & Chemical Corporation, Hengli Petrochemical, Jiangsu Eastern Shenghong, Tongkun Group, Xinfengming Group, Zhejiang Longsheng Group, Hubei Xingfa Chemicals Group, Jiangsu Yangnong Chemical, Lier Chemical, Lianhe Chemical Technology, Zhejiang Juhua, Yunnan Yuntianhua, Sailun Group, Anji Microelectronics Technology, Jiangsu Yoke Technology, Hubei Dinglong, Konfoong Materials International, Red Avenue New Materials Group, Jinan Shengquan Group Share Holding, Sichuan Em Technology, Sinoma Science & Technology, Shaanxi Lighte Optoelectronics Material, Sunresin New Materials, etc. Main risks facing ratings Risk of abnormal fluctuations in oil prices; Risk of international trade frictions; Risk of continued downward cycle; Risk of intensified industry competition; Risk of project progress falling short of expectations; Risk of exchange rate fluctuations.