Incidents. On September 18, local time, the US Federal Reserve announced that it would lower the federal funds rate target range by 50 basis points to a level between 4.75% and 5.00%. This is the first time in 4 years that the Federal Reserve has cut interest rates. Furthermore, according to the Federal Reserve's forecast, the US federal funds rate will reach 4.4% by the end of this year, the target range of 4.25% to 4.5%, fall to 3.4% by 2025, and is expected to drop to 2.9% by 2026.

Polymerized MDI is mainly used overseas to insulate buildings, cut interest rates, or benefit the needs of the US real estate market. The company's core product, Polymerized MDI, is mainly used in the fields of refrigerator and freezer insulation, building insulation, etc., and is mainly used in building insulation overseas. Take data from Huntsman, an important polyurethane supplier in North America, as an example. 44% of its polyurethane division's revenue in 2023 came from demand in insulation-related fields. The most important form of use was PU foam spraying. The overseas real estate market is one of the areas that has the greatest and most direct impact on MDI demand. Previously, interest rates in the US market were at historically high levels, and excessive mortgage interest rates clearly suppressed demand for new homes. At the same time, it is also difficult for residents who already own real estate to accept excessively high mortgage interest rates for housing replacement.

After the Federal Reserve cut interest rates this time, the downward trend in mortgage interest rates confirmed that the North American real estate market will release previously suppressed demand for home purchases.

The US is China's largest MDI export destination, and the company is the most important exporter. According to customs data, in 2023, the company's province exported about 0.2169 million tons of polymeric MDI to the US, accounting for 25.17% of the export volume of the province (same below), exported 0.1007 million tons to Russia, accounting for 11.68%, and exported 0.0834 million tons to the Netherlands, accounting for 9.68%, ranking first to third respectively. From January to July 2024, the company's province exported 0.1663 million tons to the US, accounting for 26.94% of the province's exports, 0.0805 million tons to the Netherlands, accounting for 13.05%, and 0.0475 million tons to Turkey, accounting for 7.70%. Since 2019, the United States has been the company's largest MDI export destination, accounting for between 24%-33% of the export ratio of the company's provinces. According to US customs data, China imported about 0.17 million tons of polymeric MDI to the US in 2023, and China accounted for 76.06% of the supply. If demand for US real estate recovers, it may directly benefit the company's growth in exports of MDI products.

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, several key projects of the company will be put into operation. We expect net profit to be 17.229, 21.637, and 24.472 billion yuan in 2024-2026, corresponding PE is 14x, 11x, and 10x, respectively. We are optimistic about the company's development trends and maintain a “recommended” rating.

Risk warning: 1) the risk of falling downstream demand; 2) the risk of trade conflicts; 3) the risk of new project construction falling short of expectations; 4) the risk of exchange rate fluctuations.