April 1, 2022

Wanhua Overview

WANHUA CHEMICAL(600309)SERIES 1：ON THE WAY TO BECOMING A GLOBAL CHEMICAL LEADER DRIVEN BY INNOVATION AND PROJECT INVESTMENT

类别：公司 机构：中国国际金融股份有限公司 研究员：Xiongwei JIA/Qichao ZHAO/Xiaofeng QIU/Di WU/Yaping XIAO/Yilin HOU 日期：2022-03-29

　　Action

    　　We think Wanhua Chemical’s （Wanhua） recent share price correction presents opportunities for investment in the medium and long term. The company has made breakthroughs in technologically challenging production techniques and developed technologies on its own by leveraging its sound innovation system and sustained R&D spending. Meanwhile, Wanhua relies on heavy capex to further expand production capacity of its core products, build an integrated presence in the value chain, and achieve industrialized production of new products. These moves have helped Wanhua continue to expand its scale. We estimate that new projects that the firm has planned to build since end-2021 require capex of more than Rmb80bn. We calculate based on current product prices that these projects may generate revenue of over Rmb140bn after coming online. In our view, Wanhua’s mid- and long-term growth is highly visible thanks to its sustained R&D, innovation, and heavy capex for the coming years. We think Wanhua is on the way to becoming a global chemical leader.

    　　Reasoning

    　　We are not pessimistic about 2022 earnings from methylene diphenyl diisocyanate （MDI） and toluene diisocyanate （TDI）。 Wanhua further expands capacity to increase market share.

    　　No new MDI or TDI facilities are scheduled to start production in 2022 across the globe. We expect MDI and TDI demand to continue to rise amid global economic growth. Europe accounts for 27% and 28% of global MDI and TDI capacity. We think rising natural gas prices in Europe could increase MDI and TDI costs, thus boosting Chinese exports of these two chemicals. Meanwhile, Wanhua’s polyurethane projects had a capacity utilization rate of 100% in 2021, and Covestro’s polyurethane output recovered gradually in 4Q21. We think leading firms have strong capabilities in balancing sales volume and prices.

    　　We are not pessimistic about Wanhua’s 2022 earnings from MDI and TDI. Covestro expects global MDI demand to expand at a 6% CAGR in 2021-2026. We believe global new MDI capacity before 2026 should mainly come from Wanhua. We think Wanhua’s MDI projects in Ningbo and Fujian （2.2mtpa） are likely to come on stream in the coming years. We expect Wanhua to further expand its market share by leveraging its global lead in low cost levels.

    　　Wanhua continues to expand and solidify its petrochemical business to pave the way for building an integrated presence along the value chain. In order to expand its presence to cover the full value chain and generate synergies, the company has built world-class propylene oxide （PO） and acrylic ester （AE） integrated facilities and a 1mtpa ethylene project （including the relevant chemicals）。 Earnings from this ethylene project declined recently due to higher crude oil prices. However, profit from the PO-AE integrated facilities remained decent thanks to favorable supply-demand conditions of acrylic acid and esters. Wanhua’s planned ethylene phase 2 project targets the high-end polyolefin market. The firm’s 400ktpa propylene oxide project and 480ktpa bisphenol A （BPA） project are also designed to produce polyether polyol and polycarbonate, in addition to propylene oxide and BPA. We think these petrochemical projects will likely further expand Wanhua’s coverage along the value chain.

    　　A large number of technologically-challenging industrialization projects on new materials:

    　　In the market for aliphatic diisocyanate （ADI） series products, Wanhua shifted from being a follower to a leader in 2021. Prices of these products increased notably as overseas facilities were hit by force majeure events. We think ADI will likely remain an important earnings source for Wanhua’s new material business.

    　　We expect the firm’s 40,000t nylon 12 project to start production in 2-3Q22, thus helping Wanhua gain a foothold in the nylon 12 market that has long been dominated by foreign firms. Wanhua’s citral and derivatives project is slated to come online in 2023. We think the company’s aromatics business may launch a large number of new products by leveraging its citral product. Wanhua is ahead of peers in pushing for import substitution of POE, and its POE project is now in the industrialization stage.

    　　In addition, the company also expanded its presence in cathode materials for lithium-ion batteries. We believe new-energy materials are likely to become an important growth driver for Wanhua in the next stage of development.

    　　Financials and valuation

    　　We leave our earnings forecasts unchanged. The stock is trading at 10.4x 2022 and 8.3x 2023e P/E. We maintain an OUTPERFORM rating and our TP of Rmb135, offering 73% upside and implying 18.0x 2022e and 14.5x 2023e P/E.

    　　Risks

    　　MDI and TDI prices lower than expected; earnings from petrochemical business decline significantly; progress in new projects slower than forecasted.

http://stock.finance.sina.com.cn/stock/go.php/vReport_Show/kind/search/rptid/701882322876/index.phtml

March 16, 2022

Wanhua Overview

WANHUA CHEMICAL(600309)：OPTIMISTIC ABOUT VISIBLE GROWTH POTENTIAL AND MEDIUM-AND LONG-TERM INVESTMENT VALUE

类别：公司 机构：中国国际金融股份有限公司 研究员：Xiongwei JIA/Qichao ZHAO/Xiaofeng QIU/Di WU 日期：2022-03-16

2021 earnings in line with our expectations

    Wanhua Chemical announced its 2021 earnings: Revenue grew 98.2% YoY to Rmb145.5bn, net profit attributable to shareholders rose 145.5% YoY to Rmb24.65bn, and recurring net profit grew 155.2% YoY to Rmb24.36bn, in line with our forecasts and consensus. The company’s net operating cash flow rose 65.7% YoY to Rmb27.92bn and its R&D spending grew 55.1% YoY to Rmb3.17bn in 2021. The company plans to pay a dividend of Rmb2.5/sh.

    In 2021, Wanhua’s revenue from its polyurethane business segment increased by 72.75% YoY to Rmb60.49bn and the capacity utilization rate of this business segment was 100%. The company’s production and sales volume of polyurethane products grew 37.4% and 32.7% YoY to 4.01mnt and 3.89mnt, mainly driven by technological upgrading for methylene diphenyl diisocyanate (MDI) production facilities in Yantai and growing sales volume of polyether polyol products. Rising prices of products such as MDI boosted the company’s earnings, and the gross profit margin of the company’s polyurethane products increased by 0.61ppt YoY to 35.07%. The company’s revenue from petrochemical products increased by 132.5% YoY to Rmb61.41bn, and production and sales volume of the company’s self-produced products rose 79.5% and 74.8% YoY to 4mnt and 3.9mnt, mainly because the company’s ethylene production facilities were put into operation. The gross profit margin of the company’s petrochemical products increased by 9.45ppt YoY to 17.09%, mainly driven by the sharp increase in prices of petrochemical products and changes in product mix after the ethylene production facilities were put into operation. The company’s revenue from fine chemicals and new materials rose 94.2% YoY to Rmb15.46bn, mainly driven by growing sales volumes of products such as ADI, waterborne resins and TPU, and rising prices of products. The company’s sales volume of fine chemicals and new materials grew 37% YoY to 0.76mnt with gross profit margin rising 2.31ppt YoY to 21.25%.

    Wanhua’s subsidiary in Ningbo generated net profit of Rmb6.6bn (up 43% YoY) in 2021 and Rmb3.78bn in 2H21. Wanhua’s subsidiary in Yantai generated net profit of Rmb5.17bn in 2021 and Rmb2.37bn in 2H21. Wanhua’s subsidiary BorsodChem generated net profit of Rmb4.78bn (up 184% YoY) in 2021 and Rmb1.65bn in 2H21.

    Trends to watch

    Visible growth potential; clear medium- and long-term investment value. Due to rising prices of commodities such as crude oil and coal, we think earnings of Wanhua’s petrochemical and polyurethane businesses will face some pressure in the near term. However, we think there is no need to be pessimistic about full-year earnings of the company’s polyurethane business, as the capacity utilization rate of this business was 100% in 2021 and there is roughly no new production capacity for MDI and TDI products across the world this year. We expect the company’s 40,000t/year nylon-12 project and 0.48mnt/year bisphenol A project to be put into production and generate profits in 2022. We think the company’s newly-built 0.4mnt/year MDI production capacity in Fujian and 0.6mnt/year MDI production capacity in Ningbo are likely to be gradually put into operation after 2023. Meanwhile, the company plans to build a 1.2mnt/year ethylene project (second phase), a 0.4mnt/year propylene oxide project, a 0.2mnt/year maleic anhydride project, an MMA integration project, a 0.14mnt/year PC project, and vitamin A and vitamin E projects. We expect new projects to boost the company’s profits over 2023-2025. Considering the company’s current share price, we believe that pessimistic expectations for short-term earnings have been priced in. Given the company’s visible growth potential in the next several years, we are optimistic about the company’s investment value in the medium and long term.

    Financials and valuation

    We keep 2022 and 2023 earnings forecasts unchanged. The stock is trading at 10.7x 2022e and 8.6x 2023e P/E. We maintain OUTPERFORM rating and target price of Rmb135 (18.0x 2022e and 14.5x 2023e P/E), offering 68% upside.

    Risks

    Lower-than-expected prices for products such as MDI; sharp rise in raw material prices; disappointing progress of new projects.

http://stock.finance.sina.com.cn/stock/go.php/vReport_Show/kind/search/rptid/700734359558/index.phtml

March 16, 2022

Wanhua Overview

WANHUA CHEMICAL(600309)：OPTIMISTIC ABOUT VISIBLE GROWTH POTENTIAL AND MEDIUM-AND LONG-TERM INVESTMENT VALUE

类别：公司 机构：中国国际金融股份有限公司 研究员：Xiongwei JIA/Qichao ZHAO/Xiaofeng QIU/Di WU 日期：2022-03-16

2021 earnings in line with our expectations

    Wanhua Chemical announced its 2021 earnings: Revenue grew 98.2% YoY to Rmb145.5bn, net profit attributable to shareholders rose 145.5% YoY to Rmb24.65bn, and recurring net profit grew 155.2% YoY to Rmb24.36bn, in line with our forecasts and consensus. The company’s net operating cash flow rose 65.7% YoY to Rmb27.92bn and its R&D spending grew 55.1% YoY to Rmb3.17bn in 2021. The company plans to pay a dividend of Rmb2.5/sh.

    In 2021, Wanhua’s revenue from its polyurethane business segment increased by 72.75% YoY to Rmb60.49bn and the capacity utilization rate of this business segment was 100%. The company’s production and sales volume of polyurethane products grew 37.4% and 32.7% YoY to 4.01mnt and 3.89mnt, mainly driven by technological upgrading for methylene diphenyl diisocyanate (MDI) production facilities in Yantai and growing sales volume of polyether polyol products. Rising prices of products such as MDI boosted the company’s earnings, and the gross profit margin of the company’s polyurethane products increased by 0.61ppt YoY to 35.07%. The company’s revenue from petrochemical products increased by 132.5% YoY to Rmb61.41bn, and production and sales volume of the company’s self-produced products rose 79.5% and 74.8% YoY to 4mnt and 3.9mnt, mainly because the company’s ethylene production facilities were put into operation. The gross profit margin of the company’s petrochemical products increased by 9.45ppt YoY to 17.09%, mainly driven by the sharp increase in prices of petrochemical products and changes in product mix after the ethylene production facilities were put into operation. The company’s revenue from fine chemicals and new materials rose 94.2% YoY to Rmb15.46bn, mainly driven by growing sales volumes of products such as ADI, waterborne resins and TPU, and rising prices of products. The company’s sales volume of fine chemicals and new materials grew 37% YoY to 0.76mnt with gross profit margin rising 2.31ppt YoY to 21.25%.

    Wanhua’s subsidiary in Ningbo generated net profit of Rmb6.6bn (up 43% YoY) in 2021 and Rmb3.78bn in 2H21. Wanhua’s subsidiary in Yantai generated net profit of Rmb5.17bn in 2021 and Rmb2.37bn in 2H21. Wanhua’s subsidiary BorsodChem generated net profit of Rmb4.78bn (up 184% YoY) in 2021 and Rmb1.65bn in 2H21.

    Trends to watch

    Visible growth potential; clear medium- and long-term investment value. Due to rising prices of commodities such as crude oil and coal, we think earnings of Wanhua’s petrochemical and polyurethane businesses will face some pressure in the near term. However, we think there is no need to be pessimistic about full-year earnings of the company’s polyurethane business, as the capacity utilization rate of this business was 100% in 2021 and there is roughly no new production capacity for MDI and TDI products across the world this year. We expect the company’s 40,000t/year nylon-12 project and 0.48mnt/year bisphenol A project to be put into production and generate profits in 2022. We think the company’s newly-built 0.4mnt/year MDI production capacity in Fujian and 0.6mnt/year MDI production capacity in Ningbo are likely to be gradually put into operation after 2023. Meanwhile, the company plans to build a 1.2mnt/year ethylene project (second phase), a 0.4mnt/year propylene oxide project, a 0.2mnt/year maleic anhydride project, an MMA integration project, a 0.14mnt/year PC project, and vitamin A and vitamin E projects. We expect new projects to boost the company’s profits over 2023-2025. Considering the company’s current share price, we believe that pessimistic expectations for short-term earnings have been priced in. Given the company’s visible growth potential in the next several years, we are optimistic about the company’s investment value in the medium and long term.

    Financials and valuation

    We keep 2022 and 2023 earnings forecasts unchanged. The stock is trading at 10.7x 2022e and 8.6x 2023e P/E. We maintain OUTPERFORM rating and target price of Rmb135 (18.0x 2022e and 14.5x 2023e P/E), offering 68% upside.

    Risks

    Lower-than-expected prices for products such as MDI; sharp rise in raw material prices; disappointing progress of new projects.

http://stock.finance.sina.com.cn/stock/go.php/vReport_Show/kind/search/rptid/700734359558/index.phtml

February 9, 2022

SKC Results

SKC: 4Q21 Results Solid Excluding One-offs

• By Lee Jin-myung & Choi Gyu-heon
• February 9, 2022, 17:49

4Q21 OP falls short at KRW99.4bn (-32% QoQ) due to one-offs

SKC posted operating profit of KRW99.4bn (-32% QoQ) for 4Q21, missing the consensus estimate of KRW117.9bn. Factoring out one-off expenses of KRW25bn incurred from employee bonuses, ramp-up of a new plant and commercialization of transparent PI films, actual earnings were solid.

The mobility materials division reported top-line growth on increased volume, but saw operating profit fall 13% QoQ due to employee bonuses and costs related to the sixth new plant. Chemicals delivered solid results with operating profit coming in at KRW89.3bn (-5% QoQ) and operating margin remaining high at 29.6% despite one-off expenses, thanks to the continued uptrend in propylene glycol (PG) and propylene oxide (PO) spreads. Operating earnings from industrial materials turned to a loss due to costs incurred for the commercialization of transparent PI films, but sales of semiconductor materials reached a new quarterly high on shipment growth.

1Q22 OP forecast at KRW125.4bn (+26% QoQ)

For 1Q22, we forecast operating profit at KRW125.4bn (+26% QoQ). The mobility materials division will likely report sales of KRW202.2bn (+7% QoQ) and operating profit of KRW26.7bn (+30% QoQ). Earnings growth should be driven by increasing shipments from the ramp-up of the sixth plant (slated for March) and rising copper foil ASP. With chip shortages causing disruptions in production at EV clients, we expect SKC to focus on diversifying its clientele to minimize negative impact on overall earnings.

Operating profit from chemicals is projected at KRW86.1bn (-4% QoQ) for 1Q22. PO spreads will likely decline amid weakening market conditions. In contrast, demand for high value-added PG is expected to remain strong, helping to limit the decline in overall operating profit from chemicals. Industrial and semiconductor materials should post growth in both sales and profits, backed by brisk downstream demand in 1Q22.

http://www.businesskorea.co.kr/news/articleView.html?idxno=87296

February 9, 2022

SKC Results

SKC: 4Q21 Results Solid Excluding One-offs

• By Lee Jin-myung & Choi Gyu-heon
• February 9, 2022, 17:49

4Q21 OP falls short at KRW99.4bn (-32% QoQ) due to one-offs

SKC posted operating profit of KRW99.4bn (-32% QoQ) for 4Q21, missing the consensus estimate of KRW117.9bn. Factoring out one-off expenses of KRW25bn incurred from employee bonuses, ramp-up of a new plant and commercialization of transparent PI films, actual earnings were solid.

The mobility materials division reported top-line growth on increased volume, but saw operating profit fall 13% QoQ due to employee bonuses and costs related to the sixth new plant. Chemicals delivered solid results with operating profit coming in at KRW89.3bn (-5% QoQ) and operating margin remaining high at 29.6% despite one-off expenses, thanks to the continued uptrend in propylene glycol (PG) and propylene oxide (PO) spreads. Operating earnings from industrial materials turned to a loss due to costs incurred for the commercialization of transparent PI films, but sales of semiconductor materials reached a new quarterly high on shipment growth.

1Q22 OP forecast at KRW125.4bn (+26% QoQ)

For 1Q22, we forecast operating profit at KRW125.4bn (+26% QoQ). The mobility materials division will likely report sales of KRW202.2bn (+7% QoQ) and operating profit of KRW26.7bn (+30% QoQ). Earnings growth should be driven by increasing shipments from the ramp-up of the sixth plant (slated for March) and rising copper foil ASP. With chip shortages causing disruptions in production at EV clients, we expect SKC to focus on diversifying its clientele to minimize negative impact on overall earnings.

Operating profit from chemicals is projected at KRW86.1bn (-4% QoQ) for 1Q22. PO spreads will likely decline amid weakening market conditions. In contrast, demand for high value-added PG is expected to remain strong, helping to limit the decline in overall operating profit from chemicals. Industrial and semiconductor materials should post growth in both sales and profits, backed by brisk downstream demand in 1Q22.

http://www.businesskorea.co.kr/news/articleView.html?idxno=87296