Bank of China International: the bottom of the basic chemical industry is being repaired, and the petroleum and petrochemical industries are under slight pressure.

Citi International released a research report stating that the performance of the basic chemical industry is expected to stabilize at the bottom in 2025, with a slight increase in profitability compared to the previous year, and the growth rate of projects under construction turning negative at the end of the year; the petroleum and petrochemical industry is facing slight pressure on revenue and performance. With the alleviation of supply-side pressure, the industry's profitability is expected to stabilize and rise, maintaining a rating of stronger than the overall market. The main points of Citi International are as follows: The performance of the basic chemical industry stabilizes at the bottom in 2025 In 2025, the basic chemical industry achieved revenue of 2.3633.50 trillion yuan, an increase of 2.41% year-on-year; achieved a total of 116.866 billion yuan in net profit attributable to shareholders, an increase of 3.78% year-on-year. The industry's gross profit margin and net profit margin were 16.52% and 5.24% respectively, an increase of 0.46 percentage points and 0.11 percentage points from 2024. Looking at the quarter, in the fourth quarter of 2025, the basic chemical industry achieved operating income of 6078.48 billion yuan, an increase of 1.30% and 3.28% respectively compared to the previous quarter and the same period last year; achieved a net profit attributable to shareholders of 10.996 billion yuan, a decrease of 66.12% and 28.49% respectively compared to the previous quarter and the same period last year. Most sub-industries in the basic chemical industry saw a year-on-year increase in revenue in 2025 Among the 33 sub-industries in the basic chemical industry, 19 sub-industries achieved positive growth in annual revenue in 2025 compared to 2024, with 8 sub-industries exceeding 10% growth. The sub-industries of non-metallic materials, adhesives and tapes, and fluorine chemical industries saw the largest revenue growth rates, with year-on-year growth rates of 18.57%, 16.41%, and 16.21% respectively. Significant improvement in performance in sub-industries such as adhesives and tapes, agrochemicals, and chlor-alkali in 2025, while sub-industries such as soda ash, silicones, and nylon saw significant declines in performance Among the 33 sub-industries, 16 sub-industries saw year-on-year growth in net profit attributable to shareholders in 2025. The adhesives and tapes, agrochemicals, and chlor-alkali industries saw net profits attributable to shareholders increase by 476.43%, 416.15%, and 282.77% respectively. The sub-industries with the largest declines in net profit attributable to shareholders in 2025 include silicones, soda ash, and nylon, with decreases of 157.62% (turning to a loss), 106.24% (turning to a loss), and 87.59% respectively. Construction projects under construction saw a negative growth rate year-on-year at the end of 2025, while fixed assets continued to grow Since the large-scale expansion of the industry in 2022, the scale of construction projects has continued to expand, reaching a peak of 392.819 billion yuan at the end of 2024. By the end of 2025, the construction projects under construction in the industry amounted to 303.182 billion yuan, a decrease of 22.82% year-on-year. Among the 33 sub-industries, the sub-industries with the largest year-on-year growth in construction projects at the end of 2025 were polyester (+61.61%) and non-metallic materials (+56.63%), while the sub-industries with the largest year-on-year declines were adhesives and tapes (-82.44%) and compound fertilizers (-72.00%). The fixed asset amount of the basic chemical industry at the end of 2025 was 1502.514 billion yuan, an increase of 13.89% year-on-year. The petroleum and petrochemical industry saw a decrease in revenue and net profit attributable to shareholders in 2025, with profitability under pressure In 2025, the petroleum and petrochemical sector achieved a total operating income of 7.4681.60 trillion yuan, a decrease of 6.04% year-on-year; and a total net profit attributable to shareholders of 330.554 billion yuan, a decrease of 11.73% year-on-year. The gross profit margin and net profit margin of the petroleum and petrochemical industry in 2025 were 19.08% and 4.71% respectively, a decrease of 0.06 percentage points and 0.35 percentage points from 2024. The return on equity (diluted) of the petroleum and petrochemical industry in 2025 was 8.88%, a decrease of 1.57 percentage points from 2024. The gross profit margin and return on equity (diluted) of the petroleum and petrochemical industry continued to decline from 2023 to 2025. Construction projects in the petroleum and petrochemical industry saw negative year-on-year growth As of the end of 2025, the construction projects in the petroleum and petrochemical industry amounted to 687.707 billion yuan, a decrease of 6.55% from the end of 2024. The amounts of construction projects at the end of 2025 for PetroChina, China Petroleum & Chemical Corporation, and CNOOC Limited were 216.616 billion yuan, 195.196 billion yuan, and 150.913 billion yuan respectively, with year-on-year changes of +0.77%, -6.49%, and -4.05%, and the three companies accounted for 81.83% of the industry's total. Investment recommendations As of May 5, 2026, the SW basic chemical industry's price-to-earnings ratio (TTM, excluding negative values) was 29.51 times, ranking at the 84.36th percentile of its historical range (from 2002 to present); the price-to-book ratio was 2.61 times, ranking at the 74.58th percentile of its historical range; the SW oil and petrochemical industry's price-to-earnings ratio (TTM) was 16.26 times, ranking at the 49.68th percentile of its historical range (from 2002 to present); the price-to-book ratio was 1.53 times, ranking at the 53.17th percentile of its historical range. Considering that the current round of industry expansion is nearing its end, measures such as "dual carbon" and anti-"internal circulation" are expected to catalyze a recovery in industry profitability at the bottom, while new materials are benefiting from the rapid development of downstream demand and are expected to start a new high-growth cycle. In the long term, the global market share and competitiveness of the chemical industry chain will continue to improve, maintaining a rating of stronger than the overall market. Long-term investment themes are as follows: 1. With oil prices staying at a relatively high level amid ongoing geopolitical conflicts, high-quality petrochemical and coal chemical assets are expected to undergo revaluation; 2. The global market share and competitiveness of the chemical industry continue to improve, with industry leaders showing strong operational resilience, expanding into new materials and other areas, increasing their competitive capabilities against the trend, and experiencing performance and valuation improvements in the context of improving industry sentiment; 3. Continued catalysis from measures such as "dual carbon" and anti-"internal circulation", focusing on sub-industries with sustained improvement in supply-demand patterns, including refining and chemicals, polyester, dyes, silicones, agrochemicals, refrigerants, phosphate chemicals, etc.; 4. Rapid development in downstream industries, with ample room for growth for companies in the new materials sector. 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: Risk of abnormal fluctuations in oil prices; Risk of international trade frictions; Risk of continued downturn in the cycle; Risk of increased industry competition; Risk of project progress falling short of expectations; Risk of exchange rate fluctuations.