WANHUA CHEMICAL(600309)：TO CONSTRUCT LOW-CARBON NEW-MATERIALS INDUSTRIAL PARK;CAPEX DRIVES GROWTH

　　What's new
　　Wanhua Chemical Group proposed investing Rmb23.1bn in an integrated, high-performance, new materials program with supporting facilities in its Penglai Industrial Park through controlling subsidiary Wanhua Chemical (Penglai). The program will have an annual capacity of 900,000t of propane dehydrogenation (PDH), 500,000t of polyether, 400,000t of propylene oxide, 300,000t of polypropylene, 300,000t of epoxy ethane, 300,000t of epoxy ethane derivatives, acrylic acid and ester (160,000t of acrylic acid, 160,000t of butyl acrylate, and 20,000t of octyl acrylate), and 200,000t of carbonate.
　　Comments
　　Wanhua aims at building Penglai base into comprehensive eco-friendly industrial park; to have top-level technology, product added value, low carbon emissions. Wanhua plans to use the PDH-based propylene produced in its Penglai base and ethylene produced in Yantai Industrial Park as basic raw materials to process propylene oxide polyether, polypropylene, acrylic acid and ester, epoxy ethane and epoxy ethane derivatives, and carbonate. The firm plans to achieve connectivity of liquefied petroleum gas (LPG) and ethylene to leverage the advantages of different industrial parks in the value chain. The new program requires high investment.
　　Most projects in the new program are capacity expansions, and most facilities adopt self-developed or upgraded technologies, suggesting that they are green, efficient, and low-cost. We believe the new program will lay the foundation for industrialization of high-end fine chemicals and new materials. Wanhua’s Penglai base will reduce carbon emissions using the most advanced in-facility energy optimization and integration, collection and recycling of waste heat and carbon dioxide, and new energies (nuclear, wind, and PV power). In our view, the Penglai base program will drive the firm’s growth.
　　Optimistic about 2022 earnings from MDI; upbeat on TDI’s price hikes. Covestro estimates the global MDI capacity utilization rate at nearly 90% in 2021, with 2022 seeing no new methylene diphenyl diisocyanate (MDI) capacity globally. On the demand side, we expect MDI demand to continue rising amid global economic growth. Given China’s pro-growth emphasis, we expect domestic MDI demand to rebound. Chem366.com reports that Europe represents 27% of the global MDI capacity.
　　We think the price hikes of natural gas in Europe will drive up MDI costs, boosting China’s MDI exports. Thus, we are optimistic about MDI’s full-year prices and earnings in. We think that the toluene diisocyanate (TDI) output will decline YoY due to the halt of facilities at Gansu Yinguang Juyin Chemical and others. No new TDI facilities are scheduled to start production in 2022, and we expect the rising energy costs in Europe to drive up TDI costs and prices there. Such conditions are favorable for China’s TDI exports. Thus, we are upbeat about the reversal of TDI supply and demand conditions and its price hikes.
　　Capex drives medium-to-long-to-term growth. The firm’s polyurethane, petrochemical, fine chemicals, and new materials segments have a number of new projects, which we think will push up capex beyond Rmb100bn in the next few years. If all new projects begin operating, we believe that will generate operating revenue of more than Rmb160bn (based on current ASP). In our view, the firm’s high capex will drive its growth in the next few years.
　　Financials and valuation
　　We maintain our 2022 and 2023 earnings forecasts at Rmb23.52bn and Rmb29.3bn. The stock is trading at 11.8x 2022e and 9.5x 2023e P/E. Maintain TP of Rmb135 (18.0x 2022e and 14.5x 2023e P/E), offering 52.5% upside. Maintain OUTPERFORM.
　　Risks
　　MDI and TDI prices lower than expected; earnings from petrochemical business decline significantly; progress in new projects lower than forecasted.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。