Wanhua Chemical (.SS)_ Watch for Potential US Anti-Dumping Investigation

Summary of Wanhua Chemical (600309.SS) Conference Call Company Overview - Wanhua Chemical is the global leader in MDI production with a total capacity of 4.1 million tonnes as of mid-2024, with facilities in Ningbo, Yantai, Fujian, and Hungary [23][12][10]. Industry Context - A petition was filed for anti-dumping duties on US MDI imports from China, which could impact Wanhua significantly as the US is China's largest MDI export market, accounting for 22% of total exports [2][4]. - Rising protectionism is identified as a risk for Wanhua due to China's increasing reliance on exports to manage domestic surplus [2][25]. Financial Performance - The company reported a net profit of Rmb 16,234 million in 2022, which increased to Rmb 16,816 million in 2023, but is projected to decline to Rmb 13,763 million in 2024 [5][6]. - Earnings per share (EPS) growth is expected to be negative in 2024 (-18.2%) but recover slightly in 2025 (3.5%) and 2026 (10.0%) [5][6]. - The target price for Wanhua Chemical shares is set at Rmb 64, reflecting a 12x price-to-earnings ratio based on 2026-27 estimates [4][26]. Market Dynamics - Domestic MDI prices increased by Rmb 600-700 per tonne (3-4%) post-Chinese New Year due to re-stocking and low inventory levels [2]. - However, the company faces challenges with non-PU chemicals struggling at low pricing levels, which could lead to further softening of earnings in Q4 2024 [2][4]. Economic Outlook - The forecast for US natural gas prices suggests a rise to $4.2-$5.0 per mmbtu in 2025-26, which may affect Wanhua's profitability from its new mixed feed cracker [3]. - The company is expected to experience a decline in return on equity (ROE) due to increased market fragmentation and competition in the functional materials sector [25]. Risks and Concerns - Key downside risks include execution risks in new business ventures, lower-than-expected MDI spreads due to weak demand, and potential price reductions by competitors to gain market share [28]. - The potential for increased tariffs on US imports of propane could disproportionately affect Wanhua compared to its peers [25][4]. Conclusion - Wanhua Chemical is currently rated as a "Sell" due to anticipated declines in earnings and the impact of external market pressures, including trade tensions and domestic oversupply issues [4][25].