类别:公司 机构:东吴证券国际经纪有限公司 研究员:Leon Li 日期:2023-11-27

  Huachang Chemical (HC) has been deeply engaged in the field of chemical industry

      for more than 50 years: The company uses coal gasification as the source of the industrial chain, and its main products include fertilizers, soda ash and polyols. The company's revenue and net profit in 2022 were 9 billion (2015-2022 CAGR 12%) and 900 million (2015-2022 CAGR 62%) yuan respectively.

    Coal-to-urea price difference recovers: future urea production capacity expansion is limited and downstream demand is strong and less elastic, the urea boom cycle is expected to be maintained. The company relies on coal gasification to produce urea and compound fertilizer, with production capacities of 400,000 tons and 1.6 million tons respectively as of June 2023. Due to the loose supply and demand pattern of coal, the price difference between coal-to-urea has gradually recovered.

      HC has the leading soda ash production capacity: The company adopts the joint-alkali

      method and uses self-produced synthetic ammonia, which has a raw material cost advantage. As of June 2023, HC’s soda ash production capacity is 700,000 tons, and its production in the Jiangsu, Zhejiang and Shanghai regional markets has leading scale and competitive advantage. HC’s soda ash segment profit is greatly affected by the price of soda ash. The revenue of 1.642 billion yuan in 2022, +28% year-on-year.

      The polyol business is developing rapidly, and new production is about to be

      launched: Butyl-octanol production capacity is generally relatively stable in China, but output is rising steadily and competition in the industry is fierce. HC gives full play to its cost and location advantages, and its polyol business revenue has a compound growth rate of 24% from 2015 to 2022. As of June 2023, HC's product segments include butyl octanol and others, neopentyl glycol, and polyester resin, with production capacities of 320,000 tons, 60,000 tons, and 100,000 tons respectively. In 2021, the company invested in the construction of a polyol project with an annual output of 300,000 tons and supporting facilities. As of June 2023, pre-approval has been completed, which will further enhance the company's competitiveness.

      The exploration of hydrogen energy has begun to show results: The hydrogen energy

      policy continues to be favorable, and HC is exploring multiple directions in the field of hydrogen energy: 1) HC takes advantage of hydrogen production to build its own hydrogen refueling stations; 2) HC is relying on its subsidiaries to develop hydrogen fuel cell stacks, hydrogen fuel cell engine (integrated) and hydrogen fuel cell industry testing equipment; 3) HC’s joint ventures conduct research and development of hydrogen fuel cell catalysts.

    Earnings Forecast & Rating: We initiate with the BUY rating, and expect that HC’s net profit will increase by -16%/9%/28% YoY to Rmb0.74/0.80/1.03bn in 2023/2024/2025 respectively, with corresponding P/E at 9.3/8.5/6.7x respectively, considering that HC's coal chemical business is stable, the construction of new polyol production capacity is steadily progressing, and the hydrogen energy business continues to develop.

    Risks: Intensified market competition, ineffective product promotion, fluctuation in product prices, fluctuation of macroeconomic.