In the semi-annual report, I used a word in my analysis, “going far and far,” which actually has two meanings. The first layer is “far”, we can clearly see Wanhua’s obvious bright and lofty prospects; the second layer is “steady”, Wanhua is steadily turning the planned great blueprint into reality step by step.
When Wanhua has completed the plan for the past three to five years, even if it no longer develops and lives in this family business, the value of Wanhua will be much higher than the current market value. Many people say that Wanhua trillion can be expected. If this trillion refers to the market value, then there is nothing wrong with this statement. Mr. Market can do any absurd thing. At a certain stage in the future, it is not unbelievable that Wanhua will be priced at trillions. If referring to intrinsic value, IMHO, I can’t see that far. I can only roughly see what Wanhua will look like in three or five years, and discounted to the present, Wanhua is worth at least 500 billion.
Well, there are a lot of appearances in the distance, and then look at the feet, the road is a step by step. In the semi-annual report, I said this about the quality of the current stage: “From the perspective of profitability, this is undoubtedly another downward cycle. However, compared with the previous downward cycle, this cycle is significantly different. The usual downward cycle It was the sluggish demand that brought about a sharp drop in product prices, which recently affected profitability. This time, due to geopolitical factors, energy costs have soared. Product prices have lost the ability to pass on costs. Although product prices are at high levels, However, relative to the sharp rise in the cost of raw materials, the price of products cannot rise in proportion, which is equivalent to a sharp drop in prices. On the other hand, the rise in costs has suppressed the demand for chemical products as a whole, and recently suppressed the prices of downstream products. It is this complex and extremely special reason that has caused the current situation. This is not a typical downward cycle, and it is difficult to predict how it will evolve in the future. Abnormally high oil prices are short-term factors, and chemical products have remained high The price level is unrealistic, and the impact on profitability is complicated. How the cost factor and price factor evolve together determine the level of profitability. The impact of geopolitics on energy prices will gradually weaken, and the gradual decline in product prices is also a high probability. But I think , the price reduction of the cost of raw materials will be much greater than the price of products, in other words, the profit side is the low-value stage of Wanhua in the past six months.” At that time, I just made a directional judgment on the evolution of costs and prices based on common sense, and proposed that The conclusion of the inflection point of performance.
The third quarterly report came out. If the quarter was used as the dimension of time, it was indeed too early to say. But most of the judgments at that time have also been verified. At the time of the semi-annual report, although the prices of main products were at a high level, relative to the sharp rise in raw material costs, product prices could not rise in proportion, which was equivalent to a sharp drop in prices, which reduced the profit in the second quarter from 6 billion to 5 billion. In the third quarter, it dropped from 5 billion to 3.2 billion, because “it is unrealistic to maintain high prices for chemical products” by my words.
In the third quarter, the aggregated MDI remained at the first-line level of 15,000-16,000 yuan, and the pure MDI was maintained at around 20,000 yuan. The average price only dropped slightly, and the TDI increased significantly. The impact on the price of the polyurethane sector is limited. From the operating data in the third quarter, the average price of polyurethane was 15,562 yuan, a decrease of 500 yuan, or 3%, from 16,061 yuan in half a year. At the same time, benzene has dropped slightly from 8,461 yuan to 8,397 yuan, and coal has risen slightly from 1,090 yuan to 1,128 yuan, so the cost side is basically stable. The side shows that the profitability of the polyurethane sector in the third quarter is basically stable. The gross profit margin in the first half of the year was 28.2%, and it is estimated that the gross profit margin in the third quarter dropped slightly to between 27-28%. In the third quarter, polyurethane contributed a gross profit of 38-42. The sales volume was 1.07 million tons, down 50,000 tons or 4% from the 1.12 million tons in the second quarter. The second half of the year is usually the peak season for the polyurethane industry, with sales not rising but falling, indicating that the complex situation this year has indeed affected demand. The average price of fine chemicals and new materials dropped from 23,729 yuan in the first half of the year to 20,000 yuan, a decrease of 15.7%. But the cost-end LPG dropped from about $825 to $680, a drop of 17.5%. A larger decrease in cost can offset the decrease in price, so the gross profit margin of fine chemicals and new materials increases slightly (the same number is subtracted from the numerator and denominator, the cost rate becomes smaller, and the gross profit margin becomes larger). In the first half of the year, the gross profit margin was 28.6%, and in the third quarter, the gross profit margin was expected to be 29-30%. Fine chemicals and new materials contributed gross profit of 1.39-1.44 billion. In Wanhua’s sector classification, there is another balance item, which is mainly related transactions provided by each other internally, such as heat. If it is not divided into any sector, it is placed in other sectors. In the first half of the year, the revenue was 6.22 billion, the gross profit was 1.99 billion, and the gross profit margin was 32%. Taking into account the independent pricing of related party transactions, the gross profit rate is stable, so this piece of 3.7 billion in the third quarter will contribute about 1.2 billion in gross profit. Let’s calculate an account. In the third quarter, 5.4 billion gross profit, polyurethane contributed about 4 billion, fine chemicals and new materials contributed about 1.4 billion, and other differences contributed about 1.2 billion, so the gross profit of the petrochemical sector in the third quarter was -1.2 billion. . The petrochemical sector lost money in the third quarter! In the second quarter, the petrochemical segment still had a gross profit of more than 1 billion yuan. One mile away, the petrochemical segment lost more than 2.2 billion in gross profit. The net profit in the third quarter was nearly 1.8 billion less, and the pre-tax was 2.1 billion. It can be seen that the problems of Wanhua in the third quarter are all in the petrochemical sector.
The ineffective revenue from LPG trade in the third quarter was about 1.7 million tons, and the ton price was US$680. The average exchange rate was calculated at 7.1, and the LPG trade income in the third quarter was about 8.2 billion. The revenue of the petrochemical sector excluding LPG trade was 8.9 billion, compared with 18.4 billion in the first half of the year, and the revenue in the third quarter is estimated to be almost the same as the second quarter. Since the quarterly report cannot calculate the actual sales volume, the average ton price cannot be obtained. However, the operating data announcement listed the average prices of a number of products in the third quarter. For example, acrylic acid fell by 41%, butyl acrylate fell by 31%, n-butanol fell by 25%, PVC fell by 25% and so on. In the first half of the year, the real gross profit margin of the petrochemical sector was only 11%, which is itself a meager profit. Although the cost-side LPG has also dropped by about US$145, a drop of 17.5%, but the price drop in the third quarter will inevitably lead to losses.
As soon as the third quarterly report was announced, the market was in an uproar in the face of 46% and 30% declines. Immediately someone shouted Wanhua thunder, and waited at the limit. We all have a proportionality bias, and we can’t help but make a fuss when faced with huge declines. This is normal, but after a calm analysis, Wanhua’s situation is far from that bad. In the face of the sharp rise and fall of chemical products, the enterprises with meager profits have turned from profits to losses, which has had a great impact on the whole. Is it serious? Nothing serious! Wanhua’s petrochemical sector is itself a support for polyurethane and new materials, not a purpose. In such a severe form, neither the polyurethane nor the new material pulls the hip, and Wanhua is relieved. As for petrochemicals, Wanhua has no choice but to suffer a slight loss for the time being. Last year was a big year for the chemical industry. Most of the products were historically high. Wanhua’s 25 billion performance was a great contribution to the petrochemical industry. This year’s scenery is not there. This is actually the normal state of the chemical industry, with sharp rises and falls, and strong cycles. With the addition of geopolitical factors, the situation this year is extremely complicated. In the first half of the year, the main products maintained a high level, but the cost soared and the price did not rise, which was equivalent to a sharp drop. In the third quarter, it returned a bit to the usual logic of “the down cycle is caused by a sluggish demand that brings about a sharp drop in product prices, which affects profitability recently.” It’s just that the influence of geographical factors is far from gone, so it has jointly contributed to the unusually tragic results of the third quarter. However, returning to common sense, the impact of geopolitics on energy prices will gradually weaken, and it is inevitable that product prices will fall from high levels. But I still think that the price reduction of raw material cost will eventually be much larger than the product price. Now the price of the product has fallen, and although the LPG at the raw material side has dropped significantly, it will not be achieved in one step, but will gradually decline. The third quarter is a mismatched time window, and the reaction is very bad in terms of performance.
It is very easy for people to make the mistake of linear extrapolation. When the third quarterly report came out, most people were shouting 17 billion. I read several research reports of securities companies, and they all adjusted it to about 17 billion. I am quite speechless about this. I predict that in the fourth quarter, the cost side is likely to continue to fall, and the price is unlikely to fall substantially. Think about it in reverse, Wanhua has lost money, how long can an ordinary factory sustain it? It is hoped that the petrochemical sector will turn from a small loss to a small profit. Don’t underestimate this change. One out and one in can make a gross profit of 2 billion. Not to mention polyurethane, the price of benzene and coal in the third quarter is only loose, and it is only a matter of time before the substantial drop. Both MDI and TDI have been increasing in price, and supply is in short supply. New materials will also benefit from cost reductions. In addition, there will be new production capacity in the fourth quarter. Nylon 12 has been put into production, as well as citral and 400,000 tons of MDI in Fujian. Although it is difficult to contribute much profit, fly legs are also meat. In this way, 5 billion to 6 billion in the fourth quarter is very easy. Under the optimistic situation, more than 6 billion is the best in history, and it is not a fantasy. Therefore, the transcripts handed over by Wanhua in 2022 may be 19-20 billion.
I did the math, and I think I figured it out. Actually, I don’t know if this is necessary. See the present clearly, see the future clearly, hold it with peace of mind, and not be disturbed by the outside world. I have to admit that these are based on the market environment and want to make myself feel at ease. That’s because my cultivation is not enough, and I have to practice. Regardless of the fourth quarter, look a little farther. Next year, heavyweight increments such as nylon 12, citral, and MDI will start to contribute to performance. As long as the situation does not deteriorate, Wanhua will have a very good year, comparable to 2021.
Finally, put a picture, quarterly ROE, if you want to guess the cycle, I think guessing based on ROE is more reliable than others. That’s it, I have no conclusion.
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