Incident: Wanhua Chemical released its 2024 mid-year report, achieving operating income of 97.067 billion yuan, up 10.8% year on year; net profit attributable to shareholders of listed companies was 8.174 billion yuan, down 4.6% year on year. Net profit after deducting non-recurring profit and loss was 8.1 billion yuan, a decrease of 2.54% year on year. Based on the total share capital of 3.14 billion shares, earnings per share were 2.60 yuan, and operating cash flow per share was 3.28 yuan. In the second quarter, revenue was 50.906 billion yuan, up 11.42% year on year and 10.28% month on month; net profit attributable to shareholders of listed companies was 4.017 billion yuan, down 11.03% year on year and 3.39% month on month; equivalent to EPS of 1.28 yuan per quarter.

The company plans to implement semi-annual profit distribution for 2024, and distribute a cash dividend of 5.20 yuan (tax included) to all shareholders for every 10 shares based on a total share capital of 3.14 billion shares.

The scale of production and sales increased, gross margin remained stable, and non-recurrent factors affected the company's performance. In the first half of 2024, the polyurethane series, petrochemical series, fine chemicals and new materials series achieved revenue of 35.455, 39.575 and 12.979 billion yuan respectively in the company's main business, with changes of +26.85, +34.43, +1.715 billion yuan, yoy +8.2%, +9.5%, and +15.2%, respectively, compared with the same period last year. The company achieved gross profit of 15.827 billion yuan, an increase of 1.455 billion yuan over the previous year; by product, polyurethane series, petrochemical series, fine chemicals and new materials series achieved gross profit of 9.927, 1.79, and 2.205 billion yuan respectively, with year-on-year changes of +3.86, +0.957, and -0.279 billion yuan. The company's comprehensive gross margin was 16.4%, down 0.1 pcts year on year; among them, the gross margins of polyurethane series, petrochemical series, fine chemicals and new materials series were 28.0%, 4.52%, and 16.99%, respectively, with year-on-year changes of -1.1, +2.2, and -5.1 pcts. 24 In the first half of the year, the production of polyurethane series, petrochemical series, fine chemicals and new materials series was 2.83, 2.77, and 1 million tons, respectively, compared with +37, +52, and +0.21 million tons. In terms of sales, the above three series of products sold 2.69, 2.75, and 0.92 million tons respectively. Among them, sales of polyurethane, fine chemicals and new materials series increased by 0.34 and 0.18 million tons respectively over the same period last year. In terms of price, the year-on-year narrowing of the price spread of 24H1 polyurethane series products and the year-on-year decline in prices of new materials and functional chemicals affected the company's profit level.

The company's cost rate for the period was 5.5%, an increase of 0.7 pcts over the same period last year. The total amount of the three fees was 3.263 billion yuan, an increase of 0.822 billion yuan over the previous year. 24H1's R&D expenses were 2.081 billion yuan, an increase of 0.29 billion yuan over the previous year. The R&D expenses rate was 2.14%, yoy+0.1 pcts; in addition, 24H1's credit impairment losses increased by 0.214 billion yuan over the same period last year.

Projects under construction continue to advance, contributing to the company's long-term growth. The scale of the company's projects under construction continued to expand. As of 2024/6/30, it reached a record high of 59.813 billion yuan, and the ratio of projects/fixed assets under construction was 55.58%. In the second half of 2024, the company will continue to promote the construction of the second phase of ethylene and the first phase of Penglai. In addition, the company announced cooperative special polyolefin projects with ADNOC and others to continue to raise the level of internationalization.

Profit forecast and valuation: Prices of some of the company's products have declined since this year. Combined with product price trends and future production capacity investment, we expect net profit to be 17.1, 20.2, and 25.3 billion yuan in 2024-2026 (23.9 and 28.4 billion yuan before 2024 and 2025), maintaining a “buy” investment rating.

Risk warning: macroeconomic downside risk, risk of large fluctuations in product and raw material prices, risk that the progress and profits of new construction projects will not meet expectations. The relevant data is calculated by own statistics