Valuation and investment advice

As a leader in the chemical industry, the company follows the creed of "outstanding innovation" and continues to rely on innovative core technology, industrial equipment and efficient operation mode. deepen the integration of polyurethane, petrochemical, fine chemicals and new materials industry chain, enhance the added value of products; continue to create new products with technological leading advantages, and expand diversified product portfolio. In the future, the company will continue to focus on the industrial layout of "petrochemical-polyurethane-new chemical materials-fine chemicals", transforming from a polyurethane enterprise based on MDI to a modern enterprise with coordinated, efficient and integrated development of the three major plates; and redefine the global layout from the procurement end, production end, sales end and other links to become a global chemical giant. We raise the company's profit forecast and expect the company's net profit from 2021 to 2023 to be 212.47 pound / 25.607 billion yuan respectively (205.97pm 225.09 / 25.012 billion yuan respectively), an increase of 111.6 pound 9.5pm 10.0% over the same period last year; EPS is 6.77max 7.41max 8.16 yuan per share (6.56pm 7.17pm 7.97 yuan per share respectively before adjustment). The net profit of the company is estimated to be 212.47 pound / 25.607 billion yuan for 2021-2023 (205.97 yuan / 225.09 yuan before adjustment), an increase of 10.0% over the same period last year. Combined with the absolute valuation method and the relative valuation method, we estimate that the reasonable valuation range of the company in the coming year is 142.11-158.28 yuan, which is 29.78% 44.54% higher than the current stock price premium, and maintains the "buy" rating.

Core hypothesis and logic

First, polyurethane business: the company's Yantai Industrial Park 60 to 1.1 million tons of MDI capacity expansion project has been completed. As of June 2021, the company has a capacity of 2.6 million tons of MDI (27.5% of the world). When the future 400000 tons of Fujian and 600000 tons of Ningbo capacity expansion projects are completed, the company will further consolidate its position as a global MDI giant. The company will continue to take MDI and TDI as the core, focusing on improving the capabilities of two supporting platforms, polyether and modified MDI.

Second, petrochemical business: the company now has a production capacity of 100 and 750000 tons of ethylene and propylene respectively. In the future, it will continue to develop more fine and higher value-added products with unique advantages, such as modified PP, super absorbent resin SAP, neopentyl glycol NPG, polyether polyol, MIBK, isophorone and so on. We are optimistic that the company will continue to cultivate the LPG/ olefin business model and gradually expand the petrochemical industry cluster.

3. Fine chemicals and new materials business: as an advanced international TPU supplier, Wanhua's products are widely used in shoe materials, cables, automotive, electronics, medical and other application fields; the company's special amine business ploughs epoxy curing agent and other fields, and gradually extends to new application fields such as wind power composite materials, sewing agents, etc. The second phase of PC plant has been completed and put into production, with a supply capacity of 210,000 tons / year of PC, and further technological transformation and expansion of production capacity in the future; IP-IPN-IPDA-IPDI industry chain has achieved full resumption of production in 2020, with a richer product mix; nylon 12 and other key projects have been smoothly carried out according to the node; in April 2021, the environmental impact report of Wanhua Chemical citral and its Derivatives Integration Project has been submitted for approval and announced before approval. In addition, the first phase of the modified plastic project planned and constructed by the company in Meishan, Sichuan has been officially put into production, and the second phase of 60,000 tons of PBAT biodegradable polyester and 10,000 tons of lithium battery ternary materials have been approved for construction (while planning the later construction project), we expect to put into production by the end of 2021. Wanhua Sichuan Base will play an important role in the strategic transformation of Wanhua to the chemical new materials industry.

The difference between the market and the market

First, the market generally believes that the chemical industry belongs to the traditional industry. we believe that thanks to the continuous development trend of China's economy, the domestic chemical industry is still in an important period of strategic opportunity, and the industry is transforming to a high-quality development mode. there is great potential for industrial structure optimization and upgrading. We are long-term, sustained and firmly optimistic about the "made in China" excellent enterprises with hard core technology, independent innovation, lofty pattern and social ideals. As a leader in the chemical industry, the company will focus on the future, look to the world, and build a new chemical materials company with global operation.

Second, it is generally believed that the price fluctuation of MDI products will cause the company's performance to show significant periodicity. In fact, the company has formed three industrial clusters with highly integrated industrial chain and deeply integrated polyurethane, petrochemical, fine chemicals and new materials. With the development of the company's business, the proportion of non-MDI business is expected to increase gradually in the future, and a high degree of coordination will be formed among various industrial plates.

Third, we split and calculate the demand pattern of MDI from the point of view of downstream building thermal insulation materials, refrigerator appliances, soles, TPU, spandex and other industries. We estimate that the global pure MDI demand for 2021-2023 is 236.68 MDI 245.47 / 2.5489 million tons, an increase of 5.95%, 9.88%, 14.10% over 2019, and the aggregate MDI demand is 561.32, 581.97 / 6.0375 million tons, respectively, with an increase of 8.03% 12.00% 16.19% over 2019. The prospect of MDI demand is still broad.

The Catalytic factors of Stock Price change

First, in the medium and long term, the company's main products aggregate MDI downstream freezer exports, real estate completion demand growth trend, pure MDI demand is expected to benefit from the rapid growth of spandex, TPU industry.

Second, with the stabilization of the high level of international crude oil, the performance of the petrochemical board is expected to be repaired, and the first phase of the million-ton ethylene project is currently running well and is expected to release its performance in 2021.

Third, modified resin, HDI, PBAT, lithium battery ternary materials and other fine chemicals and new materials new / reconstruction and expansion capacity will be launched in the next 1-2 years, BDO and other projects are under environmental assessment.

The main risks of core assumptions or logic

The global macroeconomic downturn; the lower-than-expected demand for products and a sharp decline in prices; the risk that the company's production capacity is not as expected; the risk of chemical safety production, etc.