Incident 1: On March 18, the company released its 2023 annual report. In 2023, the company achieved revenue of 175.36 billion yuan, +5.9% year on year; net profit to mother was 16.82 billion yuan, +3.6% year over year; net profit after deducting non-return to mother was 16.44 billion yuan, +4.1% year over year. Revenue for the fourth quarter of a single quarter was 42.81 billion yuan, +21.8% YoY, -4.7%; net profit to mother was 4.11 billion yuan, +56.6% YoY, -0.5% month-on-month; net profit after deducting non-return to mother was 4.01 billion yuan, +66.6% YoY and -2.6% YoY.
Incident 2: On April 18, the company released its 2024 quarterly report. In the first quarter, the company achieved revenue of 46.16 billion yuan, +10.1% year-on-month, +7.8%; net profit to mother of 4.16 billion yuan, +2.6% year-on-year, +1.1% month-on-month; net profit after deducting non-return to mother of 4.13 billion yuan, +3.5% year-on-year and +2.9% month-on-month.
Polyurethane: Overseas installations are disrupting again, and the MDI boom is picking up at the bottom.
Operating conditions: In '23, the polyurethane sector achieved revenue of 67.4 billion yuan, +7.1% year over year; on a quarterly basis, 23Q4 and 24Q1 achieved revenue of 173 billion yuan and 17.5 billion yuan respectively, +23.3% and +11.5% year-on-year, and -0.03% and +1.1% month-on-month.
Production and marketing: With the release of new MDI and TDI production capacity one after another, the production and sales scale of the polyurethane business continued to expand. Annual production and sales in '23 were 499 and 4.89 million tons, respectively, +20.0% and +17.0%; 23Q4 and 24Q1 production were 1.34 and 1.36 million tons, respectively, +34.0% and +17.2% YoY, +12.6% and +1.5% month-on-month; sales volumes were 1.3 and 1.31 million tons, +25.0% and +18.0% YoY, respectively.
Price spread: Looking at 23 years, the price of MDI products declined somewhat with the price of pure benzene and thermal coal as raw materials. Despite a gradual recovery in domestic and overseas terminal demand, the overall price spread narrowed slightly. The average listing price of pure MDI, product price and price spread were +0.6%, -4.3%, and +0.8% year-on-year, respectively; polymeric MDI was -6.5%, -8.8%, and -5.1% year-on-year. Entering 24, pure MDI and aggregate MDI boomed, with average listing prices of +9.9% and +2.9% YoY in 24Q1, +1.0% and +0.9%; average market prices +7.3% and +3.0% YoY, and -2.5% and +3.2% month-on-month; average spreads +7.7% and +0.5% YoY, and -6.1% and +1.5% month-on-month.
Recent changes: As of April 30, domestic pure MDI and polymeric MDI prices were 19,000 and 16,700 yuan/ton, respectively, -3.3% and +8.4% compared to the beginning of the year, in the 25.8% and 21.7% levels since 2009; the price differences were 1,151 and 9651 yuan/ton, respectively, -11.2% and +4.8% compared to the beginning of the year, and were in the 9.9% and 12.7% levels since 2009. Recently, many MDI installations around the world were discontinued unplanned. The cumulative production capacity was shut down over one million tons, which is estimated to account for about 11% to 12% of the world's total production capacity. As uncertainty about overseas installations intensifies, domestic aggregate MDI exports have increased dramatically, countercyclical real estate policies under pressure from superimposed transactions, and the catalysing of a new round of “trade-in” policies, the converged MDI boom is expected to pick up further.
Leading leader: Following the commissioning of 400,000 tons of MDI technology production capacity at the Fujian base at the end of April, the company currently has an MDI production capacity of 3.5 million tons (Yantai 110+ Ningbo 120+ Fujian 80+ Hungary 40). It is the world's largest MDI producer, with a global market share of 33.1%. In the future, the company also plans to expand the capacity of the Ningbo and Fujian bases by 600,000 tons, respectively, and the long-term market share is expected to reach 35%-40%. On the TDI side, on the basis of completing the 47.81% share acquisition of Yantai Juli's shares in 2013, the Fujian base added 150,000 tons of production capacity. Currently, the total nominal production capacity has reached 950,000 tons, and the production capacity is under construction/planning. After full capacity is released, the global market share is expected to increase to 38.4%, making the MDI+TDI double leader.
Petrochemical: Cost relief, refinement, and high-quality projects are about to be put into operation.
Operating conditions: In 2008, petrochemical series products and LPG trade revenue was 69.3 billion yuan, -0.4% year over year; on a quarterly basis, 23Q4 and 24Q1 achieved revenue of 175 billion yuan and 18.5 billion yuan respectively, +31.1% and +1.8% YoY, +11.0% and +6.0% month-on-month.
Price difference performance: Driven by the boom in the chemical industry in the early stages, basic chemicals are still in a period of rapid expansion in production capacity. The overall industry is oversupply, and the price spread is still bottoming out. The price differences for propylene, propylene oxide, MTBE, acrylic acid, PVC (ethylene method), and ethylene oxide were -5.1%, +18.2%, reversed losses, -71.4%, -25.2%, and -11.6% year-on-year, respectively. In 24Q1, the company's main raw materials, thermal coal, propane, and ethane were -18.5%, -10.4%, and -10.5% year-on-year, respectively. The cost side relieved the rise in international oil prices, and price differences for some products increased. According to Wind, 24Q1 propylene, propylene oxide, MTBE, acrylic acid, PVC (ethylene method), and ethylene oxide price differences were -10.6%, -11.0%, reverse loss, -42.8%, -30.2%, and -21.9%; month-on-month, +21.9%, +5.4%, -0.01%, +11.1%, -11.1%, and -10.4%, respectively.
Project construction: By the end of '23, the first phase of the Penglai Park project had all been transferred from civil engineering to the equipment installation stage, and the second phase of the ethylene project was progressing as scheduled. According to the plan, the first phase of the 900,000 tons/year propane dehydrogenation project in Penglai is expected to be put into operation in 24Q4, and the 1.2 million tons/year ethylene project in Yantai is expected to be put into operation one after another from the end of '24 to the beginning of '25. When high-quality projects are put into production, the company is expected to further improve the C2-C4 industry chain, and an integrated new petrochemical platform is ready to be launched.
New materials: import substitution of high-end materials, the battery industry is planning a new chapter.
Operating conditions: Revenue from fine chemicals and new materials in '23 was $23.8 billion, +18.4% year over year; quarterly, 23Q4 and 24Q1 reached 6.2 billion yuan and 6.1 billion yuan respectively, +28.5% and +14.3% year over year, and -1.4% and -2.2% month over month.
Production and sales: Production volume for the full year of '23 was 1.65 million tons, +68.4% and +67.4%, respectively; 23Q4 and 24Q1 production were 47,000 tons, +74.1% and +23.7%, respectively, and remained flat at +20.5% month-on-month; sales volumes were 420,000 and 440,000 tons, respectively, +55.6% and +25.7%, and -2.3% and +4.8% month-on-month.
Project progress: The import substitution process for high-value-added new material products has been accelerated. The high-profile “0-1 breakthrough” POE project (first phase with production capacity of 200,000 tons/year) is expected to be put into operation in 24Q2. The second phase of the 400,000 tons/year POE project at the Penglai base is now under construction. It is expected that the company's total POE production capacity will reach 600,000 tons by the end of '25. Based on this, the 48,000 tons/year citral - fragrance project is also expected to be put into operation in 24Q3. The long-term growth target is clear, and it will become a global platform-based new chemical materials enterprise.
Battery materials have built a second growth curve: facing the rapid development of new energy sources, the company has entered the battery industry and has now completed the layout of a full range of cathode, anode, and electrolyte products to further build a battery material ecosystem. In April '24, Wanhua Battery, a wholly-owned subsidiary of the company, completed the registration of 15.2% and 5.0% shares in Anada and Rukuo Chemical Group, further extending and improving the layout of the lithium battery raw materials industry chain and enhancing the core competitiveness of the battery industry, especially the lithium iron phosphate industry. At the same time, Wanhua Battery collaborated with Anada's leading titanium dioxide business to continue to strengthen the company's existing operational strength in the paint, plastics and ink fields to create new highlights for long-term development.
Profit forecast and investment suggestions: Based on the data disclosed in the company's annual report, combined with the recent MDI industry market situation and the company's future development plan, we adjusted the profit forecast. The company's net profit for 24-26 is 185.3, 212.0, and 25.82 billion yuan respectively (the previous forecast was 20.38 billion yuan and 23.74 billion yuan respectively for 24-25). The PE corresponding to the current stock price is 15.3, 13.4, and 11.0 times, respectively, and the corresponding PB is 2.7, 2.2, and 1.9 times, respectively, maintaining the “buy” rating.
Risk warning: economic downturn; large fluctuations in product and raw material prices; progress of new projects falls short of expectations; downstream demand falls short of expectations; untimely information updates, etc.