Yantai Wanhua: The Most Difficult Anticipation Or Embodiment

Aniline prices will significantly increase production costs. Aniline is one of the important raw materials for MDI production, accounting for about 70% of MDI's operating cost.

Affected by the rising price of crude oil and coal, the price of benzene and nitric acid in the main raw materials of aniline has increased considerably since May.

In the first half of the year, the company's performance has maintained a relatively good momentum of development, and the gross profit margin of pure MDI and aggregated MDI has even increased.

As one of the two important raw materials of aniline, the price of pure benzene has basically maintained the following trend of relative oil price.

We believe that in the future, if the international crude oil price has reached a historical high, if there is no significant factor supporting the future, the second half is expected to fall back to around $110, thereby driving the price of pure benzene downward. Besides, the expansion of domestic crude benzol refining capacity is expected to stabilize the price of benzene in a certain extent.

The price of nitric acid, another important raw material, is affected by the rising cost of coal on the one hand. On the other hand, it is also affected by the imbalance between supply and demand.

According to our investigation of nitric acid enterprise joint chemical company, the sharp rise in the price of nitric acid can be regarded as a recoverable rebound of the industry for a long time. The shutdown, reduction and even conversion of some of the devices represented by Ji'nan chemical fertilizer plant in Shandong aggravated the resilience of the price of nitric acid.

From the level of nitric acid enterprises and associations, we understand that some enterprises are considering the price limit measures in order to maintain the long-term development of nitric acid and downstream industries. In addition, part of the capacity of nitric acid in the second half and next year is expected to recover.

According to the statistics of the Petrochemical Association, the output of nitric acid in China in the first half of this year was 987 thousand tons, up by only 4.56% over the same period last year, and the average operating rate of the plant was about 85%. Although some devices in 5 and June reached full load production, the supply and demand is still obvious because of the overhaul and the arrival of summer.

If Ji'nan chemical fertilizer plant can solve the problem of high pressure steam in 9 and October and achieve partial recovery, the contradiction between supply and demand is expected to slow down. Therefore, we believe that the price of nitric acid in the second half of the year should be stable and decreasing.

Through investigation, we learned that the purchasing price of aniline in June was about 15000 yuan / ton, while in July it reached 16000 yuan / ton, which rose by 40% - 50% relative to the beginning of the year.

According to our preliminary estimate, if we do not consider the MDI price increase and other cost rising factors, the proportion of aniline to MDI operating cost has risen to about 78%, the operating cost of single ton MDI has increased by about 38%, and the gross profit margin of MDI has dropped to about 23%.

Taking the above analysis into consideration, we believe that the current high price of aniline in the second half of 08 years, especially in the fourth quarter, will be difficult to sustain. Therefore, the lowest level of Yantai Wanhua MDI gross profit margin in the second half of the year is predicted to be around 30%.

Two, the capacity of the MDI market in the future may be much larger than that of the market. There is no doubt that the expansion of capacity is not a scourge. In the first half of the year, the decline of terminal footwear, leather, textile, coatings and other industries affected the profitability of upstream MDI products through the intermediate links such as sole raw liquid and slurry. In the first half of this year, the loss of NPU company in Japan has also verified this.

However, through research and market visits, we know that the decline of the terminal market is mainly concentrated on some enterprises that are filial piety and backward management. Therefore, the impact on the intermediate industries such as sole raw materials, slurry and even spandex basically stays at a lower level.

Taking the sole raw liquid market as an example, it has a strong impact on the industry adjustment of the downstream footwear industry, and in the long run, it is expected that the market of shoemaking and soles will be more standardized by eliminating backward production capacity and retaining large enterprises.

In addition, despite the rise in labor costs and the appreciation of the renminbi and other factors on China's footwear, leather, textile and other traditional industries have a certain negative impact, but through the pfer of capacity to Vietnam, India and other places of the actual experience of enterprises, China in the traditional industries still have strong competitive advantage.

In addition to concerns about the weakening demand for traditional downstream markets, the market is also concerned about the prospects of building insulation market.

Through investigation, we know that some polyurethane thermal insulation materials have been used in some major construction projects in Yantai and some domestic projects. Some downstream customers of Wanhua have even developed an application example with certain advantages.

We judge: from a global perspective, the market capacity of the polyurethane, known as the sixth generation plastic, is far from saturated. The price, downstream application technology development and supply are all important factors that restrict the expansion of the polyurethane market. The price factor is particularly important.

From the history of the establishment of Wanhua, it has always been the first place to foster market and maintain market stability in anti-dumping or 05 years of MDI price inflation.

Admittedly, the release of new capacity in the future may indeed dilute the profitability of polyurethane, especially MDI, but if the market focus of polyurethane gradually moves from the middle to the high level to the public level, we think that not only in the field of building insulation, but also in many other fields, polyurethane will also be promising. Once the price is changing, the profit of the future MDI products will also be mainly focused on the expansion of output and market size.

Three, the company's operation is in good condition. The expansion of Yantai's headquarters is successful. According to the company's personnel, Wanhua's MDI products belong to the world's first-class quality. Therefore, it is different from other inferior quality manufacturers. Wanhua terminal customers have a relatively high positioning. In the first half of the year, they are basically not affected by the "big shuffle", and even some of the smaller customers are still unable to fully meet the order needs.

In July, the company's pure MDI and aggregated MDI listing price (including tax) were 25200 yuan / ton and 24500 yuan / ton respectively, representing a decrease of 2000 yuan / ton and 1000 yuan / ton respectively compared with January, which is basically in the normal fluctuation range, and the gross profit margin in the first half of the year is related to the scale effect.

At present, the output ratio of pure MDI and aggregate MDI is basically 1:1, which is basically the same as the domestic MDI consumption structure. If the demand for polymerized MDI increases in the future, the company can adjust it by increasing the production capacity and reducing the purification ratio.

In the 08 year, the fixed assets investment of the company is estimated to be 400 million yuan. At present, the "12 expansion 20" project in Yantai is at the trial stage. After August, the total output will not be a problem. The first phase of the "24 expansion 30" project in Ningbo will need to be carried out in early 09.

According to the data from China Daily, the company's assets and liabilities ratio is 38.96%, and the financing pressure is higher than that for the previous issue. Due to the need to take into account the interests of Ningbo Wanhua's employee stock ownership, it will not take place in the short term. It is expected that 09 years later, the two phase of Ningbo and the possible relocation of Yantai will generate larger capital needs.

The company enjoys 06 years and 07 years' support policies for Yantai's high-tech enterprises. The part of the income tax exceeding 15% tax rate is returned to the enterprises by the end of the year.

In case of R & D expenses, it will be included in the out of business receipts or payments, otherwise it will be temporarily shown in other current liabilities. At present, the fund has reached more than 120 million yuan.

After years of continuous R & D investment, it is estimated that by the end of 08, the new products such as PC, HDI and IPDI will be successfully completed. The 20 thousand tons / year capacity of modified MDI and TPU is also advancing steadily. The ecological plates operated at the group level have been produced normally in Hubei base, and the three production bases in Henan and Shandong are also actively preparing for construction.

Four, the investment proposal in the first half of the year the actual production of MDI17.18 million tons, we expect that in 08 years is expected to achieve 38 to 400 thousand tons of output, the annual sales of about 370 thousand tons.

Because of the rising cost of raw materials, the international Pu giants have been raising prices for their products in Europe and the United States for several quarters. Therefore, we have judged that if the price of aniline continues to remain high in the second half of the year, the domestic MDI will also have a corresponding price increase action, but considering the downstream acceptance capacity, the price range is about 5%-10%.

Based on the above analysis, we have a conservative forecast that Yantai Wanhua's earnings per share for 08 years are 1 yuan, and the optimistic forecast is 1.09 yuan. After 09 years, we think that the company can fully share the gluttonous feast of polyurethane industry brought by our country and even global economic development and consumption upgrading, and maintain "overweight" rating by virtue of excellent management, technological research and development advantages and perfect incentive measures.