The company's recent situation
According to Wanhua's announcement on July 23, Wanhua Chemical, Wanrong New Materials (Fujian) Co., Ltd. (Wanhua Chemical holds 80% shares), Abu Dhabi National Petroleum Corporation (ADNOC), Nordic Chemical (Borealis), and Borouge (Borouge) signed a “Project Cooperation Agreement” in Beijing on the same day.
ADNOC, Nordic Chemical, and Borouge Chemical (ADNOC and Nordic Chemical hold 54% and 36% shares, respectively) formed an investment consortium and Wanrong New Materials intended to form a joint venture according to a 50% to 50% shareholding ratio to begin a feasibility study on the construction of a special polyolefin integrated facility with a production capacity of 1.6 million tons/year in Fuzhou, Fujian. This “Project Cooperation Agreement” is only a framework agreement in principle.
reviews
It is proposed to jointly build a 1.6 million-ton special polyolefin integrated facility based on mutual collaborative industrial chain utilization. Borealis is one of the world's leading providers of advanced and sustainable polyolefin solutions, and its proprietary Borstar? Polyolefin products manufactured by technology have strong competitive advantages; Borouge Chemical provides innovative and differentiated polyolefin solutions for infrastructure, energy, transportation and other industries. Wanhua Chemical has advantages in the ethane supply chain, including ethane raw material costs, terminal resources, VLEC, and production processes. According to Jiangnan Shipbuilding Group's official WeChat account, on July 23, Jiangnan Shipbuilding and China Shipbuilding Trade, a subsidiary of China Shipbuilding Group, jointly held a signing ceremony with AW Shipping (a joint venture between ADNOC Logistics & Services and Wanhua Chemical, Wanhua Chemical holds 50%) construction contracts for 2+2 93,000 cubic meter VLAC projects and construction contracts for 9 99,000 cubic meter VLEC projects. Considering the rich experience of the investment consortium in specialty polyolefins, as well as Wanhua Chemical's advantages in the ethane supply chain and the cost competitiveness of the ethane-ethylene process line, we believe that this project cooperation has good profit prospects. Furthermore, the company plans to reduce overall carbon dioxide emissions through full utilization of carbon dioxide captured by hydrogen and polyurethane industry chains through ethane cracking, and the use of 100% zero-carbon electricity in joint ventures. This cooperation is linked to the integrated specialty polyolefin business. We expect to further deepen the level of cooperation with ADNOC and others, which is expected to further enhance the level of internationalization of Wanhua Chemical.
The commissioning of the Ethylene Phase II project and the diversification of raw materials for the Phase I Ethylene Plant will enhance the profitability of the petrochemical business. The company's ethylene phase II 1.2 million tons/year ethylene is expected to be gradually put into operation by the end of 2024. At the same time, the company plans to implement the Ethylene Phase I 1 million tons/year ethylene plant diversification project. After the project transformation, the company will increase the amount of ethane used and can flexibly adjust the feed according to changes in the bulk raw material market, etc., which we believe will further enhance the cost competitiveness and profitability of the company's ethylene industry chain.
Profit forecasting and valuation
We keep our profit forecast for 2024/25 unchanged. Currently, the company's stock price corresponds to the 2024/25 price-earnings ratio of 12.1/9.6x. We maintain our target price of 105 yuan, corresponding to a 31.7% increase and a price-earnings ratio of 16/12.6x in 2024/25, and maintain our rating of outperforming the industry.
risks
Ethane prices have risen sharply, and project cooperation has fallen short of expectations.