Recent situation of the company

Costronic issued a statement on July 2 that some of its MDI devices in Brensbilitt, Germany, were stopped due to force majeure, and the shutdown period was the stage of the annual routine maintenance plan for August-September; it is not clear how long the device parking will last, but Kostron expects this stop will lead to a large degree of delay in the supply of aggregate MDI and pure MDI.

Comment

Overseas MDI supply is shrinking, and China's MDI export demand is expected to continue to rise. Due to the overseas real estate boom and the extremely cold weather in the United States, the parking of MDI devices has increased significantly since 2021. China's MDI exports have increased significantly since 2021. The aggregate MDI exports in May were 112800 tons, an increase of 309% / 38% compared with the previous month. Among them, the United States and the Netherlands were the top two exporters, with exports increasing by 75% and 115% respectively in May compared with the previous month. Aggregate MDI exports totaled 457000 tons from January to May, an increase of 93 percent over the same period last year, while pure MDI exports in May were 9300 tons, up 179 percent from January to May, or 41 percent over the same period last year. The MDI production capacity of the Brensbilit base in Germany is 400000 tons, accounting for 4.2% of the global MDI production capacity in 2021 and 15.6% of the European MDI production capacity; at the same time, according to the Tiantian Chemical Network, the 330000 tons / year MDI and other products in Texas are still under force majeure; we believe that the Costco MDI parking will lead to the contraction of overseas MDI supply, and China's MDI export demand is expected to continue to increase.

MDI prices are expected to stabilize and pick up. Recently, domestic MDI prices have gradually stabilized and rebounded. At present, the market prices of polymerized MDI/ pure MDI are 18,500 and 19,750 yuan per ton respectively, up 9.5% and 2.3% respectively from the low in June this year. With the upstream commodity price rise under control, we expect to improve the demand for products from downstream industries, while the parking of some MDI devices in Brensbilit will reduce overseas MDI supply and increase China's MDI export demand, superimposed on the maintenance plans for some domestic MDI devices from July to August, we expect to be good for MDI prices to rise.

MDI production expansion and new materials projects promote growth together. The company plans to expand 600000 tons / year MDI capacity in Ningbo base, and at the same time plans to add 400000 tons / year MDI capacity in Fujian base, and has reserved a large space for MDI expansion. We expect that in the next few years, the major new MDI production capacity in the world will be concentrated.Wanhua chemistry. The construction of the company's new material project is progressing steadily. We expect that the 60,000t / a PBAT, 10,000 t / a ternary material for carp battery and nylon 12 project are expected to be put into production from the end of this year to the beginning of next year, and the 48000 t / a citral and its derivatives project and the 100000 t / a POE project are expected to be put into production in 2023. We believe that the expansion of MDI capacity and the commissioning of new materials projects will help the company continue to grow.

Valuation and suggestion

We keep our 22-year earnings forecast for 2021max unchanged, and the company's share price now corresponds to the 2021 / 22 price-to-earnings ratio of 17.1 Universe 14.6x. We are optimistic about the medium-and long-term growth of the company, maintain the target price of 150 yuan, correspond to the 2021 / 22 24.6/21.Ox price-to-earnings ratio and 44% of the rising space, and maintain the outperform industry rating.

Risk

The price of MDI fell and the progress of the new material project was lower than expected.