Yantai Wanhua: Capacity Expansion Will Provide A Driving Force For Sustainable Growth.

Performance continued high growth in 2007, the company realized its main business income of 7 billion 804 million yuan, an increase of 57.77% over the same period last year, and the main business profit of 3 billion 117 million yuan, an increase of 76.28% compared with the same period last year, with a gross profit margin of 41.13%, a 5.10 percentage point increase over 36.04% of the same period last year, and a net profit of 1 billion 481 million yuan attributable to the listed company, a substantial increase of 71.56% over the same period last year.

Profit growth is significantly higher than the growth rate of sales revenue, a basic earnings per share of 0.89 yuan / share throughout the year.

The fully diluted net assets yield is as high as 37.75%, which is 3.93 percentage points higher than 33.82% in 06 years.

The growth rate below our 0.94 yuan / share forecast is mainly due to the failure of the company's preferential tax rate of 15%, while the company's sales and gross profit are higher than our previous forecast, making the company's performance higher than our forecast at 30% tax rate.

The distribution plan is to distribute cash dividends of 4 yuan (including tax) for every 10 shares.

The first phase technology pformation project of Ningbo subsidiary company has been completed successfully. The capacity of Ningbo MDI plant has been expanded from 160 thousand tons per year to 240 thousand tons / year, making the company's annual output of 07 years reach 337 thousand and 400 tons, a 33.89% increase over the 252 thousand tons of 06 years, far higher than that of our previous 300 thousand ton production forecast.

At the same time, due to the failure of Shanghai Lian Heng MDI device, the supply of MDI market is tight, which makes domestic MDI prices rise sharply.

In the 07 years, the arithmetic average of Wanhua pure MDI and aggregated MDI price reached 25367 yuan / ton and 26409 yuan / ton respectively, much higher than that of 06 yuan 23691 yuan / ton and 23100 yuan / ton.

The increase in product prices increased the gross profit margin of pure MDI and aggregated MDI from 43.52% and 38.41% in the first half of the year to 58.17% and 42.6% respectively.

The smooth expansion of the Ningbo plant and the increase of gross margin of products are important reasons for the company's performance to maintain rapid growth.

In the future, the demand for MDI is still growing rapidly. However, driven by the strong demand for rigid foam, utensils, adhesives and sealants, the global market demand for MDI is still growing at an annual rate of 6-7%.

Domestic demand remained stable growth. With Wanhua's expansion and Shanghai Lian Heng's commissioning, domestic capacity grew rapidly. However, the import volume of 07 years pure MDI and aggregated MDI still reached 129 thousand tons and 329 thousand tons respectively, which was 06 and 19.73% respectively.

But in the next 08 years, with the steady operation of the 240 thousand tons / year production facility in Shanghai, the Bayer MDI annual output of 350 thousand tons will also be put into operation in 08 years. After the commissioning of the NPU 200 thousand tons / year MDI plant in Japan, the sales of its products will also be mainly targeted at China. In 2008, the capacity of the Asia Pacific region will expand by more than 800 thousand tons, and it is foreseeable that the market competition in the 08 years will be intensified in 2008.

To expand capacity and further enhance competitiveness in the MDI field, the company will expand the capacity of Ningbo's 240 thousand tons to 300 thousand tons in 08 years. At the same time, the two phase of Ningbo project has been approved by the national development and Reform Commission in September 17th 07. It will build 300 thousand tons / year MDI plant and matching supporting projects such as nitric acid, nitrobenzene, aniline, formaldehyde and so on. After the completion of the project, the self-sufficiency of MDI production raw materials will be realized and the competitiveness of products will be enhanced.

The project is expected to be completed before and after 2010. In addition to expanding production in Ningbo, Yantai's 140 thousand ton production facility will also gradually increase its capacity to 180 thousand tons through technical pformation. By 2010, the MDI capacity of the company will reach 800 thousand tons / year and will become the largest MDI manufacturer in Asia.

The three cost rate has increased, and the company's operating expenses rate, management fee rate and financial cost rate have reached 11.19%, up 1.93 percentage points from 9.26% in the same period last year.

The growth rate of the three expenses has exceeded the rate of income growth, of which the management cost is 571 million yuan, which is 80.31% higher than the 317 million yuan in 06 years, and the operating cost is 224 million yuan, which has increased 76.39% compared with 127 million yuan in 06 years. The financial cost has been 53 million 710 thousand yuan, an increase of 398.77% over the previous year, mainly due to the increase in interest expense on bills discounting and the increase in foreign exchange receivables for export receivables.

The company's inventory of 651 million yuan, compared to 06 yuan 464 million yuan, an increase of 40.34%, mainly from raw materials from 173 million yuan in 06 years to 311 million yuan, an increase of 79.77%.

In the past 07 years, the company's operating income reached 111 million yuan, an increase of 649% over the same period last year. The main reason is that the company received government subsidies, including 124 million yuan of government subsidies and the other 153 million yuan in the current profits and losses.

To maintain the company's "recommended" investment rating, the MDI capacity of the company will continue to grow steadily in the next two years. In order to avoid relying too much on MDI, the company will actively develop non MDI products, and has made some progress in the fields of HDI, HMDI, TPU, polycarbonate and so on. As a first-class chemical enterprise in the country's technology R & D capability, we are optimistic about the company's ability to expand in these areas. At the same time, 15% of the company's preferential tax rate will be implemented in 08 years. It is estimated that the company's 08 and 09 years EPS will be 1.34 yuan / share and 1.54 yuan / share respectively, and will continue to maintain the company's "recommended" investment rating.