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.

The 2024Q0.03 million chemical price spread index is in the historical 9.66% quantile as of October 10, 2024. The 2024 Q0.03 million chemical price difference index was 72.77, up 1.20 from 2024 Q2 (based on the 2010 Q1 spread), and is in the historical 9.66% quantile. Taking into account the slight improvement in price spreads, the estimated net profit for Q3 is 4.1 billion yuan.

Among them, as of October 10, Wanhua Chemical's polyurethane sector Q3 spread index was 87.73, up 5.22 from 2024Q2, in the historical 16.23% fraction; as of October 10, Wanhua Chemical's Q3 petrochemical sector spread index was 65.62%, down 4.24 from 2024Q2, in the historical 8.30% quantile; as of October 10, Wanhua Chemical's Q3 new materials sector price difference index was 36.69, down 1.88 from 2024Q2, and is in the historical 8.53% fraction.

Key project progress

On September 26, 2024, the environmental impact assessment of Wanhua Chemical (Fujian) Co., Ltd.'s 0.48 million ton/year EDC renovation and expansion project was announced for the first time.

On September 20, 2024, Wanhua Chemical Group Co., Ltd. announced the draft environmental impact report for the 3800 tons of flavone production project per year.

MDI price spread

In September 2024, the average price of polymeric MDI was 18,123 yuan/ton, +7.94%, and +3.83% month-on-month; the average price of pure MDI was 18,413 yuan/ton, -16.47%, and -3.24% month-on-month. On October 11, 2024, the price of polymeric MDI was 18,500 yuan/ton, and the price of pure MDI was 18,100 yuan/ton.

In September 2024, the average price difference between polymeric MDI and coal and pure benzene was 10,150 yuan/ton, +14.10%, +6.92% month-on-month; the average price difference of pure MDI was 15,405 yuan/ton, -22.94% year-on-year and -4.32% month-on-month. On October 11, 2024, the price difference between polymeric MDI, coal, and pure benzene was 12,414 yuan/ton, and the price difference of pure MDI was 12014 yuan/ton.

According to Tiantian Chemical Network and Baichuan Yingfu, since 2024, there have been frequent unplanned shutdowns of overseas MDI installations, including: 1) the US BASF 0.4 million-ton unit stopped due to force majeure; 2) the US Covestro 0.33 million-ton unit stopped due to force majeure at the end of April; 3) the US Dow 0.34 million-ton plant stopped production due to force majeure on May 21; 4) Korea's Kumho Mitsui broke down on July 23; 5) Dutch Huntsman 0.47 million-ton/year MDI The device was declared force majeure on August 5. In addition, some overseas MDI installations are at low load. In January-August, domestic polymeric MDI exports totaled 0.8097 million tons, an increase of 3.62% over the previous year.

Downstream refrigerator exports increased year on year, and new real estate construction declined year on year in August 2024. Domestic household refrigerator production was 8.98 million units, +4.70% year on year; in August 2024, household refrigerator exports were 7.32 million units, +20.59% year over year.

In August 2024, domestic freezer production was 3.149 million units, +0.3% year-on-year; in August 2024, domestic freezer sales were 3.201 million units, +2.7% year-on-year.

In August 2024, domestic automobile production was 2.492 million units, -3.2% YoY; in August 2024, domestic automobile sales were 2.453 million units, -5.0% YoY.

In August 2024, the total area of new housing construction was 0.495 billion square meters, -22.5% year-on-year. In August 2024, the cumulative construction area of housing was 7.094 billion square meters, -12.0% 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 2024/2025/2026 is estimated to be 190.6, 230.5, and 261.8 billion yuan, respectively, and net profit to mother will be 18, 23.6, and 29.7 billion yuan respectively, corresponding to 13, 10, and 8 times PE, respectively. Considering the company's high growth rate in the future, it is estimated that the company will maintain 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.