Matters:
Incident: On May 16, 2024, Wanhua Chemical (Penglai) Co., Ltd.'s acrylic acid and ester phase II project and 400,000 tons/year polyolefin elastomer (POE) project were accepted and announced for EIA. Wanhua Chemical (Penglai) Co., Ltd.'s acrylic acid and ester phase II project built 160,000 tons/year acrylic acid plant, 400,000 tons/year butyl acrylate plant and supporting public works and auxiliary facilities. The project has a total capacity of 58 people. Construction is scheduled to begin in May 2024. The construction period is 14 months. The Ethylene Phase II project is located in Wanhua Chemical Yantai Industrial Park. The project covers an area of about 1,215 acres and plans to invest 17.6 billion yuan. It mainly constructs 1.2 million tons/year ethylene cracking plant, 250,000 tons/year low density polyethylene (LDPE) plant, 2 x 200,000 tons/year polyolefin elastomer (POE) unit, 200,000 tons/year butadiene unit, 550,000 tons/year pyrolysis gasoline hydrogenation unit (including 30,000 tons/year styrene extraction), 400,000 tons/year aromatic hydrocarbon extraction plant, and supporting utilities and facilities. The 400,000 tons/year POE project for the second phase of the Penglai base has been started and is expected to be completed and put into operation by the end of 2025.
Guoxin Chemical's opinion: 1) Wanhua Chemical's various projects progressed smoothly in 2024. Production capacity for products such as POE, citral, propane dehydrogenation, and MDI technology improvement and capacity expansion will expand, and the leading position in the chemical industry will be further consolidated; 2) Under the impetus of growing demand for downstream freezers and household refrigerators, the MDI boom in the company's main product is picking up; 3) the cost support of high oil prices, compounded by the gradual recovery of downstream exports of some products and domestic demand. It is expected that the upcoming petrochemical project will increase the company's performance to a certain extent; 4) As a leader in the polyurethane industry, the company has a solid profit guarantee, and new projects are progressing steadily. We maintain the company's net profit forecast for 2024-2026 at 193.84/224.73/23.337 billion yuan, a year-on-year growth rate of +15.3%/+15.9%/+3.8%, corresponding EPS of 6.17/7.16/7.43 yuan, and the current stock price corresponding PE is 14.4/12.4/11.9X, maintaining a “buy” rating.
Commentary:
The company's many projects are progressing smoothly
The environmental impact assessment process for various Wanhua Chemical projects progressed smoothly in 2024. On May 16, 2024, Wanhua Chemical (Penglai) Co., Ltd.'s acrylic acid and ester phase II project and 400,000 tons/year polyolefin elastomer (POE) project were accepted and announced for EIA. The second phase of the acrylic acid and ester project of Wanhua Chemical (Penglai) Co., Ltd. built 160,000 tons/year acrylic acid plant, 400,000 tons/year butyl acrylate plant and supporting public works and auxiliary facilities. The project has a total capacity of 58 people. Construction is scheduled to begin in May 2024. The construction period is 14 months. The Ethylene Phase II project is located in Wanhua Chemical Yantai Industrial Park. The project covers an area of about 1,215 acres and plans to invest 17.6 billion yuan. It mainly constructs 1.2 million tons/year ethylene cracking plant, 250,000 tons/year low density polyethylene (LDPE) plant, 2 x 200,000 tons/year polyolefin elastomer (POE) unit, 200,000 tons/year butadiene unit, 550,000 tons/year pyrolysis gasoline hydrogenation unit (including 30,000 tons/year styrene extraction), 400,000 tons/year aromatic hydrocarbon extraction plant, and supporting utilities and facilities.
The 400,000 tons/year POE project for the second phase of the Penglai base has been started and is expected to be completed and put into operation by the end of 2025.
In 2024, the company expanded in POE, citral, propane dehydrogenation, ethylene projects, and MDI technology transformation and capacity expansion. It is expected that the first phase of the POE project with an annual output of 200,000 tons will be put into operation in the second quarter of 2024, and the 48,000 tons/year citral - fragrance and fragrance project will be put into operation in the third quarter, further consolidating its leading position in the global new materials industry. In addition, the first phase of the Penglai 900,000 tons/year propane dehydrogenation project is expected to be put into operation in the fourth quarter of 2024, while the 1.2 million tons/year ethylene project in Yantai is expected to be put into operation from the end of 2024 to the beginning of 2025. The Fujian MDI technology transformation and capacity expansion project was completed at the end of April 2024, marking the further consolidation of Wanhua Chemical's leading position in the polyurethane industry. The commissioning of these projects will continue to enhance the company's production capacity and market competitiveness.
The main product, MDI, is picking up
Driven by increased demand for downstream freezers and household refrigerators, the company's main product, MDI, is booming. According to Wind data, as of May 24, 2024, the average market prices of 2024Q2's main products, polymeric MDI/pure MDI/TDI, were 16719/18934/15265 yuan/ton, respectively, +9%/+9% YoY/+9%/+4%/-7%/-9% month-on-month; price differences were 7357/9572/9884 yuan/ton, +8%/-7%/-25% month-on-month, respectively. Aggregate MDI prices and spreads all increased year-on-year, while TDI prices and spreads declined month-on-month. In April 2024, China's production of freezers and household refrigerators continued to grow year on year, with growth rates reaching 25% and 15% respectively; the number of refrigerators exported reached 21% year on year. Markets such as downstream refrigerator and freezer production and exports are good, supporting the recovery of MDI's boom.
The MDI supply side contracted in the short term due to maintenance, force majeure factors, etc. Of the 10.56 million ton MDI devices at home and abroad according to the statistics below, about 9% of production capacity was stopped due to parking maintenance or force majeure. About 36% of production capacity was in a low negative state, and the supply side contracted in the short term.
The petrochemical sector may welcome growth
In addition to the polyurethane business, the company's main business also includes the petrochemical sector and the fine chemicals and new materials sector. The cost support of high oil prices, compounded by the gradual recovery of downstream exports of some products and domestic demand, showed an upward trend in the prices of some of the company's major petrochemical series products. Among them, according to Wind data, as of May 24, 2024, 2024Q2 acrylic/acrylic/butadiene/styrene/linear low density polyethylene/polyvinyl chloride prices were +2%/+8%/+20%/+4%/+1% YoY, 0%/+8%/+3%/+1% YoY, all with significant increases in acrylic, butadiene, and styrene. It is expected that the upcoming petrochemical project will increase the company's performance to a certain extent.
Investment advice
As a leader in the polyurethane industry, the company has a solid profit guarantee, and new projects are progressing steadily. We maintain the company's net profit forecast for 2024-2026 at 193.84/224.73/23.337 billion yuan, a year-on-year growth rate of +15.3%/+15.9%/+3.8%, corresponding EPS of 6.17/7.16/7.43 yuan, and the current stock price corresponding PE is 14.4/12.4/11.9X, maintaining a “buy” rating.
Risk warning
Project commissioning fell short of expectations; raw material prices rose; downstream demand fell short of expectations, etc.