occurrences

Wanhua Chemical released the third quarter results report: From January to September 2024, it achieved operating income of 147.604 billion yuan, an increase of 11.35% over the previous year; realized net profit to mother of 11.093 billion yuan, a year-on-year decrease of 12.67%. Among them, 2024Q3 achieved revenue of 50.537 billion yuan in a single quarter, up 12.48% year on year, down 0.73% month on month, and realized net profit to mother of 2.919 billion yuan, down 29.41% year on year and 27.33% month on month.

Key investment points

Product production declined slightly month-on-month due to equipment maintenance

Centralized maintenance of the company's major polyurethane installations in Yantai and Europe in the first three quarters of 2024.

Among them, the Hungarian Powerside MID and TDI devices were discontinued for 40 days, and the Yantai Wanhua MID and TDI units were discontinued for 45 days. Affected by equipment maintenance, the company produced a total of 1.38 million tons of polyurethane products in the third quarter, and production fell 6.12% month-on-month.

Thanks to the proper arrangement of the company's maintenance plan, the company's sales volume of polyurethane series products in the third quarter was not affected by equipment maintenance. A total of 1.41 million tons of polyurethane were sold in the third quarter, an increase of 2.17% over the previous quarter.

Raw material prices have risen significantly, and the company's Q3 profit is under pressure

In the third quarter of 2024, the prices of the company's main raw materials increased markedly. Combined with weak demand, weak product prices, dragged down the company's overall net profit. The prices of the company's main raw materials, pure benzene, thermal coal, propane/butane, in the third quarter were +13.06%/-1.96%/+25.16%/+24.35%, respectively. In contrast, the average prices of the company's main products, pure MDI/polypropylene/butanol/TDI, were -1.71%/+1.96%/+0.60%/-9.50%/-8.62% in the third quarter, respectively. The overall price fell slightly, reducing the profit margin of the company's products and leading to a reduction in net profit.

Join hands with international giants to build a special polyolefin integration project

Abu Dhabi National Petroleum Company, Nordic Chemical, and Borouge Chemical formed an investment consortium. Wanrong New Materials, a subsidiary of Wanhua Chemical, will form a Sino-foreign joint venture according to a 50% to 50% shareholding ratio. Relying on Borealis's Borstar technology, the cooperation initiated the construction of a special polyolefin integrated facility with a production capacity of 1.6 million tons/year in Fuzhou, Fujian Province. The installation mainly uses Borealis's advanced proprietary Borstar technology, which has a strong competitive advantage. Combining Borouge Chemical's rich experience in specialty polyolefin production and Wanhua Chemical's comprehensive advantages in the ethane supply chain, it is expected that after the project is put into operation, it will significantly enhance Wanhua Chemical's international competitiveness and help the company enter the 3.0 era of internationalization.

Profit forecasting

The company's 2024-2026 EPS is predicted to be 6.20, 7.34, and 8.36 yuan, respectively. The current stock price corresponds to PE of 13.0, 11.0, and 9.6 times, respectively, maintaining a “buy” investment rating.

Risk warning

Downward economic risk; risk of large fluctuations in product prices; risk of project construction falling short of expectations; risk of limited commencement of construction due to environmental protection policies; risk of downstream demand falling short of expectations.