Incident Overview. On October 28, 2024, Wanhua Chemical released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 147.604 billion yuan, a year-on-year net profit of 11.093 billion yuan, or -12.67% year-on-year, net profit of 10.928 billion yuan after deducting non-return to mother net profit of 10.928 billion yuan, or -12.07% year-on-year. Among them, the third quarter of 2024 achieved sales revenue of 50.537 billion yuan, +12.48% year over month, -0.73% month on month, and realized net profit without return to mother of 2.829 billion yuan, -31.30% year on year, and -28.77% month on month.

Sales of major products grew steadily, and sales of the three major products all grew at a quarterly year-on-year rate of more than 15%. Production and sales in the three major sectors of polyurethane, petrochemicals, fine chemicals and new materials have maintained steady growth. Among them, polyurethane series products sold 1.41 million tons in 2024 Q3, up 15.97% year on year, up 2.17% month on month, petrochemical series products sold 1.32 million tons in the third quarter, up 15.04% year on year, -6.38% month on month, and 0.5 million tons of fine chemicals and new materials products, up 15.38% year on year, up 4.17% month on month.

Centralized maintenance of domestic and foreign installations had an adverse impact on performance. In the third quarter, the company concentrated on maintenance of multiple sets of installations. Among them, devices such as 0.4 million tons/year MDI and 0.25 million tons/year TDI in Hungary were overhauled from July 16 to early September; in September, due to heavy rainfall in Europe, the aniline raw materials of Pusd (Czech Republic) were affected by weakness. The 1.1 million tons/year MDI and 0.3 million tons/year TDI units and related supporting equipment in the domestic Yantai Industrial Park were overhauled from July 16 to early September; the petrochemical 0.75 million tons/year PDH installations in Yantai Industrial Park were overhauled from August 25 to early October. Production and sales of some products have been affected due to centralized maintenance of major domestic and foreign devices. In the third quarter, the prices of the company's main raw materials remained high, which adversely affected the company's profits.

A number of projects are progressing steadily, and adverse factors are expected to be eliminated in the fourth quarter. The company adheres to the management concept of “three modernization, differentiation, refinement and low cost” (globalization, differentiation, refinement and low cost), leveraging the industrial chain layout and global supply chain synergy. Fujian MDI production capacity increased from 0.4 million tons/year to 0.8 million tons/year, further improving the overall competitiveness of the park. The Ningbo 0.18 million tons/year hexanediamine project was successfully put into operation, improving the HDI industry chain support. The first phase of the 0.2 million tons/year PoE project in Yantai Industrial Park was put into operation, and the industrialization of emerging businesses such as citral and fragrance is progressing smoothly. The adverse effects of events such as centralized maintenance and force majeure were eliminated in the fourth quarter, and related business is expected to resume.

Investment advice: The company is a leader in the domestic chemical industry. Through continuous technological innovation and industrial chain layout in the fields of polyurethane, petrochemicals, fine chemicals, new materials, etc., the company has established a strong competitive advantage. In 2024, the POE, Ethylene Phase II, and Penglai Phase I projects will be put into operation. We expect net profit to be 14.846, 17.674, and 20.519 billion yuan in 2024-2026, corresponding PE is 17x, 14x, and 12x, respectively. We are optimistic about the company's development trends and maintain a “recommended” rating.

Risk warning: 1) Downstream demand decline; 2) trade conflict; 3) New project construction progress falls short of expectations; 4) risk of exchange rate fluctuations.