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.

2024Q0.04 Million Chemical Price Difference Index is in the 13.27% fraction of history

As of November 11, 2024, the 2024 Q0.04 million chemical spread index averaged 76.01, up 2.76 from Q3 2024 (based on the 2010 Q1 spread), and is in the historical 13.27% quantile. Considering the month-on-month improvement in price spreads, the estimated net profit for Q4 is 3.9 billion yuan to mother.

Among them, as of November 11, the average price difference index of Wanhua Chemical's polyurethane sector in Q3 was 96.34, up 7.91 from 2024Q3, and is in the historical 22.14% fraction. Wanhua Chemical's Q4 petrochemical sector spread index averaged 60.57, down 4.79 from 2024Q3, and is at the bottom of history. Wanhua Chemical's Q4 New Materials Sector Price Spread Index averaged 37.74, down 0.12 from 2024Q3, and is in the historical 10.04% quantile.

Key project progress

On October 16, 2024, Wanhua Chemical (Ningbo) Co., Ltd. disclosed the environmental impact assessment information of the HDI technology transformation and capacity expansion project with an annual output of 0.2 million tons.

On October 24, 2024, Wanhua Chemical Group Co., Ltd. announced the draft environmental impact report for the vanillin industry chain project with an annual output of 0.01 million tons.

On October 25, 2024, the environmental impact assessment of Wanhua Chemical (Fujian) Isocyanate Co., Ltd.'s 1.5 million tons/year MDI technology improvement and capacity expansion integration project was announced for the first time.

On November 8, 2024, Wanhua Chemical Next-Generation Battery Materials Industrial Park Phase I Project produced 0.1 million tons of lithium iron phosphate per year. The first environmental impact assessment information was made public.

MDI price spread

According to Wind, in October 2024, the average price of polymeric MDI was 18,506 yuan/ton, +18.51%, and +2.11% month-on-month; the average price of pure MDI was 18,248 yuan/ton, -11.67%, and -0.90% month-on-month.

On November 12, 2024, the price of polymeric MDI was 18,500 yuan/ton, and the price of pure MDI was 19,100 yuan/ton.

According to Wind, in October 2024, the average price difference between polymeric MDI, coal, and pure benzene was 12,451 yuan/ton, +37.58% YoY, +7.51% month-on-month; pure MDI had an average price difference of 12,193 yuan/ton, -13.49% YoY, +2.71% month-on-month. On November 12, 2024, the price difference between polymeric MDI, coal, and pure benzene was 12,744 yuan/ton, and pure MDI was 13,344 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 under load. According to Baichuan Yingfu, domestic polymeric MDI exports in January-September totaled 0.9046 million tons, an increase of 5.69% over the previous year.

Downstream refrigerator exports increased year on year, and new real estate construction declined year on year in September 2024. Domestic household refrigerator production was 9.63 million units, +9.0% year on year; in September 2024, household refrigerator exports were 6.68 million units, +9.7% year over year.

In September 2024, domestic freezer production was 3.44 million units, +5.6% year on year; in September 2024, domestic freezer sales volume was 3.243 million units, +0.03% year over year.

In October 2024, domestic automobile production was 2.996 million units, +3.6% year-on-year; in October 2024, domestic automobile sales were 3.053 million units, +7.0% year-on-year.

In September 2024, the total area of new housing construction was 0.561 billion square meters, -22.2% year-on-year. In September 2024, the cumulative construction area of housing was 7.16 billion square meters, -12.2% year-on-year.

Profit forecasts and investment ratings

Taking into account the price spread of the company's 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 due to mother is 15, 20.4, and 26 billion yuan, respectively, corresponding to 16, 12, and 9 times PE, respectively. Considering the company's future growth, the company maintains 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.