Description of the event
The company released its 2024 semi-annual report. The first half of the year achieved revenue of 97.07 billion yuan (+10.8% YoY), realized attributable net profit of 8.17 billion yuan (-4.6% YoY), and achieved attributable deducted non-net profit of 8.1 billion yuan (-2.5% YoY). 2024Q2 achieved revenue of 50.91 billion yuan (+11.4% YoY, +10.3% month-on-month), realized attributable net profit of 4.02 billion yuan (-11.0% YoY, -3.4% month-on-month), and realized 3.97 billion yuan (-8.1% YoY, -3.8% month-on-month). The company announced a cash dividend of RMB 0.52 (tax included) per share.
Incident comments
2024Q2 gross profit increased year over year, and attributable profit declined due to increased expenses and income taxes. The company leverages the advantages of the global supply chain layout. With the technical improvement and expansion of production of MDI devices in Fujian, the increase in effective production capacity of TDI devices, and the commissioning of new polyether plants in Yantai, the production and sales volume of the company's main products increased year-on-year. 2024Q2, the company's gross profit was 7.8 billion yuan, up 10.8% year on year, and financial expenses increased by 0.44 billion yuan year on year, mainly due to increased interest expenses due to increased interest-bearing debt, and income tax increased by 0.38 billion yuan year on year, mainly due to tax benefits enjoyed in the same period last year, which together led to a year-on-year decline in net profit attributable to 2024Q2.
Polyurethane profits have fluctuated since 2024, and the future trend is expected to improve. 2024Q2, MDI, and TDI price spreads changed -1.8% and -17.8% month-on-month, while polyurethane sector production, sales, and prices changed +8.1%, +5.3%, and -2.6% month-on-month. 2024Q3 (as of 2024.8.12, same below), MDI and TDI price spreads changed +0.9% and -12.8% month-on-month. New production capacity in Fujian Yantai continues to drive Fujian TDI Phase II. As the “Golden Nine Silver Ten” peak season progresses, I am optimistic about MDI/TDI profit side improvement.
Petrochemical profits are sluggish, and ethane resources are expected to be revalued. Profits in the 2024Q2 petrochemical sector were under pressure. The C3/C4 and C2 comprehensive price spreads of the two installations changed +15.1% and +23.0% month-on-month, and the production and revenue of the petrochemical sector changed -0.7% and +13.8% month-on-month. 2024Q3, the comprehensive price difference for the two sets of installations in the petrochemical sector changed -12.5% and -10.8% month-on-month. The company continues to promote the construction of Ethylene Phase II and Penglai Phase I, and aims to start production as scheduled. The company's ethane resources have established triple barriers in port pipelines, special ethane vessels, and large ethylene projects, which is expected to reshape the value of the petrochemical business.
Fine chemicals and new materials continue to expand. The company's ADI business closely tracks key target customers, actively explores business in emerging markets, and increases sales; with the commissioning of the company's bisphenol A project, Wanhua Chemical's PC industry chain is more complete, and market share and profitability have further increased; the first phase of the company's PoE project with an annual output of 0.2 million tons has been put into operation, and the industrialization of emerging businesses such as citral and fragrance is being promoted. Production, sales, and prices in the 2024Q2 fine chemicals and new materials sector changed by +12.8%, +9.1%, and +3.2% month-on-month. The new materials business, which has been put into production volume one after another, will drive the sector to continue to grow.
Strengthen shareholder dividends. In the next three years, the company will stick to cash dividends as the main focus to maintain the continuity and stability of the profit distribution policy. After withdrawing the full amount of the statutory provident fund or any provident fund, the profit distributed in cash every year should not be less than 30% of the distributable profit achieved in that year.
Maintain a “buy” rating. The company's polyurethane leadership position is prominent, the industry layout is ahead of schedule, and the petrochemical business is gradually contributing. The new chemical materials that have blossomed a lot are growing, and competitiveness continues to increase. The company's net profit is expected to be 178.3, 224.9 and 25.43 billion yuan respectively in 2024-2026.
Risk warning
1. The recovery in downstream demand fell short of expectations;
2. The progress of the new project is lower than expected.