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.

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