Investment highlights:
The future competitive advantage of the chemical industry lies in the “engineer dividend”. Wanhua Chemical is one of the few domestic examples where technological innovation drives the development of companies. Based on an excellent culture, the company has built two major moats of high technology and low cost through technological innovation and excellent operation. Wanhua Chemical is entering the ranks of global chemical giants at the pace of cyclical growth stocks.
In the short term, what affects the fundamentals of Wanhua Chemical is the popularity of the product. Judging from the characteristic indicators, price differences are the most central factor affecting short-term profits. Wanhua Chemical's product system is becoming larger and larger. In order to better indicate the extent of the company's prosperity, we use Wanhua Chemical's product system as a whole, model the difference between revenue and raw materials according to the existing product system, trace historical revenue and raw material price differences under the existing product system, and define the price difference as Wanhua Chemical's price difference index to judge the company's boom position. In the long run, what affects the fundamentals of Wanhua Chemical is future growth. Landmark products that can prove that the company has the ability to continue to evolve are critical. Wanhua Chemical has proven itself on the MDI circuit. The projects the company may land in the future are the direction of the company's future efforts, which is a space for the company to continue to evolve.
Wanhua Chemical Price Difference Index is in the historical 6.69% quantile
As of May 15, 2024, Wanhua Chemical's spread index for Q2 2024 was 70.10, down 2.82 from Q1 2024 (based on the 2010 Q1 spread), and is in the historical 6.69% quantile.
Taking into account the increase in sales, Q2 net profit remains the same as in the first quarter, and the net profit for Q2 is estimated to be 4.2 billion yuan.
Among them, as of May 15, Wanhua Chemical's Q2 polyurethane sector price difference index was 79.31, down 6.78 from 2024 Q1; it is in the historical 10.46% fraction. As of May 15, Wanhua Chemical's Q2 petrochemical sector spread index was 71.31, up 2.64 from 2024 Q1, in the historical 17.79% fraction; as of May 15, Wanhua Chemical's Q2 new materials sector spread index was 37.35, up 0.04 from 2024 Q1, and is in the historical 9.49% quantile.
On April 30, 2024, Wanhua Chemical announced that the MDI plant in Fujian Industrial Park has completed technical transformation and capacity expansion. The company's MDI plant in Fujian Industrial Park recently completed technical upgrading and capacity expansion from 400,000 tons/year to 800,000 tons/year. It already has trial production conditions, and has invested about 221 million yuan in technical improvement of the main plant.
On April 19, 2024, Wanhua Chemical's main business data for the first quarter announced that 2024Q1's polyurethane sector revenue was 17.5 billion yuan, +11.5% YoY, +1.1% month-on-month, with sales volume +18.0% YoY and +0.8% month-on-month to 1.13 million tons, with an average price of 13,360 yuan/ton, -5.5% YoY and +0.4% month-on-month; the petrochemical sector achieved revenue of 18.5 billion yuan, +6.0% month-on-month, achieving sales volume of 1.34 million tons, with a price of 13,816 yuan. Decline; the fine chemicals and new materials sector achieved revenue of 6.1 billion yuan, +14.3% year over month, -2.2% month on month, sales volume +25.7% year on year and +4.8% month on month to 440,000 tons, but product prices fell 9.0% year on year and 6.7% month on month to 13,875 yuan/ton.
On April 19, 2024, Wanhua Chemical released its report for the first quarter of 2024. In the first quarter of 2024, the company achieved operating income of 46.161 billion yuan, an increase of 10.07% year on year; realized net profit of 4.157 billion yuan, an increase of 2.57% year on year; realized net profit without return to mother of 4.127 billion yuan, an increase of 3.47% year on year.
Progress of key projects
On April 24, 2024, the “Wanhua Yantai and Penglai Industrial Park Energy Support Project Environmental Impact Report” was published. The public is now seeking comments on the environmental impact of the project.
On April 18, 2024, the environmental impact assessment report for the Wanhua Chemical (Fujian) TDI Phase II expansion project was announced for the first time. It is intended to build process equipment (nitrification, hydrogenation, photochemical), auxiliary equipment and public engineering equipment with an annual output of 360,000 tons of TDI in the Fuzhou Jiangyin Industrial Concentration Zone in Fujian Province. The main products produced are TDI 360,000 tons/year, and the by-products are OTDA 0.88,000 tons/year, dry hydrogen chloride, 91,600 tons/year, hydrochloric acid 91,600 tons/year. By the end of 2023, the company's MDI production capacity was 950,000 tons. On April 23, 2024, the company announced that the first phase of the Fujian project would expand production by 250,000 tons to 360,000 tons of EIA, and the second phase announced an additional production capacity of 360,000 tons, reaching 1.42 million tons after complete expansion. It is expected to reach 1.42 million tons after production is fully expanded. Wanhua's share of global TDI production capacity increased from 26.44% in 2023 to 34.95%.
On April 17, 2024, Wanhua Chemical announced the environmental impact report for the 30,000 tons/year methyl isobutyl ketone MIBK project before approval. It plans to build a MIBK main unit for 30,000 tons/year MIBK products in a reserved area within the nutrition sector in the East District of Wanhua Yantai Industrial Park, and the overall block. The rest of the environmental protection projects, public works, etc. rely on existing projects in the park.
On April 10, 2024, the environmental impact report of Wanhua Chemical (Penglai) by-product hydrogen utilization project was announced before approval. It is planned to mainly build 180,000 tons/year synthetic ammonia production plant in Wanhua New Material Low Carbon Industrial Park, Beigou Town, Penglai District, Yantai City, Shandong Province. The 25000 Nm3/h (O2) air separation unit approved by the original integrated project is no longer under construction. The new 42000 Nm3/h (O2) air separation unit will be built. The storage and transportation projects, public auxiliary projects, and environmental protection projects all rely on existing (under construction).
MDI price spread
In April 2024, the average price of polymeric MDI was 16,960 yuan/ton, +11.04%, and +2.17% month-on-month; the average price of pure MDI was 19,107 yuan/ton, +5.11% year-on-year and -6.90% month-on-month. On May 13, 2024, the price of polymer MDI was 17,600 yuan/ton, and the price of pure MDI was 18,750 yuan/ton. In April 2024, the average price difference between polymeric MDI and coal and pure benzene was 10,192 yuan/ton, +12.04%, +3.18% month-on-month; the average price difference of pure MDI was 12,339 yuan/ton, +2.81%, or -10.59% month-on-month.
On May 13, 2024, the price difference between polymeric MDI, coal, and pure benzene was 10,743.95 yuan/ton, and the price difference of pure MDI was 11893.95 yuan/ton. According to Tiantian Chemical Network, as of April 28, the North American MDI plant had stopped production unplanned, including BASF's 400,000-ton/year MDI plant in Gezma and Covestro's 330,000-ton/year MDI plant in Baytown, Texas. Together, the above two companies account for 44% of the total production capacity of MDI in North America. Prior to that, in late March, there was a force majeure event in the supply of Proussard MDI products in Hungary. This led to an increase in polymeric MDI exports from Chinese manufacturers to Europe in March.
Downstream refrigerator and automobile production increased year on year, and new real estate construction declined year on year in March 2024. Domestic household refrigerator production was 9.93 million units, +13.2% year on year; in March 2024, household refrigerator exports were 6.47 million units, +22.54% year on year, and +33.40% month on month.
In March 2024, domestic freezer production was 4.04 million units, +8.3% year over year and +83.1% month on month. In March 2024, domestic refrigerator sales volume was 3.84 million units, +13.6% year over year and +29.3% month over month.
In April 2024, domestic automobile production was 2.41 million units, +12.8% year on year, -10.5% month on month; in April 2024, domestic automobile sales volume was 2.36 million units, +9.3% year on year, -12.5% month on month.
From January to January 2024, the total area of new housing construction was 173 million square meters, -27.80% year-on-year. From January to January 2024, the total construction area of housing was 6.79 billion square meters, -11.1% year-on-year.
Profit forecasts and investment ratings
Taking into account the price differences of the company's main products, the company's revenue for 2024-2026 is estimated to be 2012.27, 2415.93 billion yuan, and 276.020 billion yuan, respectively, and net profit attributable to mother is 196.74, 256.19, and 32.57 billion yuan respectively, corresponding to PE 14, 11, and 9 times, respectively. Considering the company's future growth, the company maintains a “buy” rating.
Risk warning
Project construction fell short of expectations; the market fluctuated greatly; new products fell short of expectations; competition in the same industry intensified; product prices fell sharply; raw material prices rose sharply; and terminal demand fell short of expectations.