EB SECURITIES: The recovery of the large refining sector continues, and a reevaluation of high-quality asset values is expected.

EB SECURITIES released a research report stating that against the backdrop of oil price volatility and the ongoing contraction of global refining capacity, the competitive advantage of integrated leading enterprises across the entire industry chain is continuously magnifying, and the global competitiveness of domestic large-scale refining enterprises is being consistently validated. Leading refining companies effectively hedge against oil price volatility risks through long-term crude oil contracts and diversified raw material procurement systems, and their ability to flexibly adjust the output structure of petroleum and chemical products based on an entire chain layout leads to significantly greater profit stability compared to small and medium-sized independent refineries. Furthermore, with the domestic refining industry strictly controlling the addition of new capacity and the approval of new projects being stringent with lengthy implementation timelines, the existing high-quality refining capacity and complete industrial support held by leading enterprises have established an almost insurmountable core barrier, causing their scarce value to continuously increase. As the industry's supply and demand structure continues to optimize and the prosperity level steadily rises, the performance elasticity of integrated refining leaders with full-chain advantages is expected to be fully unleashed, and the window for re-evaluating the value of quality assets has already opened. EB SECURITIES main viewpoints are as follows: Oil price drop releases cost pressure, recovery trend of large refining sector continues With international oil prices continuously declining, the downward shift in raw material cost centers has opened up space for refining profit recovery. This week, the fundamentals of the domestic large refining sector continued to improve. In terms of price differentials, this week the price differentials for naphtha cracking, refining, PX, and PTA were -$53/ton, 951/ton, $275/ton, and 532/ton respectively, showing increases compared to last week of +$104/ton, +110/ton, +$95/ton, and +149/ton, indicating a general repair of main product price differentials. In the stock price sector, verification was also formed, with six leading private refining enterprises all experiencing gains this week: Jiangsu Eastern Shenghong (+7.05%), Hengyi Petrochemical (+5.61%), Tongkun Group (+4.70%), Hengli Petrochemical (+4.22%), Rongsheng Petro Chemical (+4.20%), and Xinfengming Group (+1.14%). The resonance between price differential recovery and stock price increases continues to validate the logic of profit recovery in large refining operations. Strict control of domestic capacity combined with overseas refinery exits, supply side continues to tighten Domestically, the "anti-involution" policies continue to be implemented, bringing the expansion of refining capacity close to an end. Under the strict constraint of the national limit of 1 billion tons of refining capacity, disorderly competition in the industry is expected to be effectively curbed, and the situation of low-price vicious competition may gradually improve. On the overseas front, the supply contraction is also significant. The permanent shutdown of aging refineries in Europe and North America, combined with ongoing geopolitical conflicts impacting Middle Eastern refining capacity, is accelerating the global clearance of refining capacity. According to IEA data, the global refining crude processing volume is expected to drop significantly by 4.5 million barrels per day to 78.7 million barrels per day in the second quarter of 2026, with an average annual decline of 1.6 million barrels per day to 82.3 million barrels per day, primarily due to infrastructure damage, export restrictions, and reduced raw material supply. Currently, the global refining supply side is entering a phase of substantial tightening, providing favorable support for the upswing in the domestic large refining industry. Domestic peak season restocking combined with expansion of overseas supply and demand gap leads to continuous improvement in demand for the refining industry On the refined oil end, current domestic travel demand remains high during the summer season; the consumption of gasoline for civil use and aviation kerosene is being steadily released, providing a stable demand base for the downstream refining sector. On the chemical product end, as the traditional "golden September and silver October" peak season gradually opens, downstream polyester and chemical fiber enterprises are increasingly willing to stock up at lower prices, boosting continued growth in the production and sales of polyester filament. The increase in overseas demand further opens up the growth space for the industry. According to Platts statistics, the impact of public health events and the global energy transition from 2020 to 2023 has led Southeast Asia and Australia to exit refining capacity exceeding 30 million tons, significantly shrinking regional supply capabilities. It is estimated that by 2026, the supply and demand gap for refined oil in Southeast Asia will further expand to 68 million tons, providing ample growth support for the digestion of domestic refined oil and chemical product capacity. With seasonal recovery in domestic demand and the expanding gap in overseas supply and demand, the support for the refining industry's demand side is continually strengthening, and signals of recovery in prosperity are becoming clearer. The advantages of integrated leaders continue to stand out, and the re-evaluation of valuable refining assets is expected In the context of oil price fluctuations and the ongoing contraction of global refining capacity, the competitive advantages of integrated leading enterprises across the entire industry chain are continuously expanding, and the global competitiveness of domestic large refining companies is being steadily validated. Leading refining enterprises effectively hedge against oil price volatility risks through long-term crude oil contracts and diversified raw material procurement systems, and through a full-chain layout, they flexibly adjust the output structure of petroleum and chemical products, achieving significantly greater profit stability compared to small and medium-sized independent refineries. Additionally, the current domestic refining industry is strictly controlling new capacity, with a stringent approval process for new projects and lengthy implementation cycles, creating an almost unreplicable core barrier with the existing high-quality refining capacity and comprehensive industrial support held by leading enterprises, which continues to enhance their scarce value. As the industrys supply and demand structure continues to optimize and the level of prosperity steadily rises, the performance elasticity of integrated refining leaders with full-chain advantages is likely to be fully released, and the window for re-evaluating the value of quality assets has indeed opened. Risk warning: Fluctuations in product and raw material prices, downstream demand not meeting expectations, and capacity construction progress not meeting expectations.