Summary of Wanhua Chemical Group Earnings Review Company Overview - **Company**: Wanhua Chemical Group (600309.SS) - **Market Cap**: Rmb197.5 billion / $27.5 billion - **Enterprise Value**: Rmb282.7 billion / $39.4 billion - **12-Month Price Target**: Rmb78.00 - **Current Price**: Rmb62.90 - **Upside Potential**: 24.0% [1][5] Key Financial Results - **2Q25 Net Profit**: Rmb3 billion, flat qoq but down 24% yoy [1] - **Gross Profit Margin (GPM)**: 12.2%, down 3.1 percentage points yoy and 3.5 percentage points qoq [17] - **Revenue**: Rmb47.83 billion, down 6% yoy but up 11% qoq [17] - **Operating Expenses**: Decreased by 8% yoy and 17% qoq [19] - **Free Cash Flow**: Positive Rmb2 billion, compared to an outflow of Rmb1.77 billion in 2Q24 [20] Segment Performance - **Polyurethane**: - Sales volume up 14% yoy, but price down 10% yoy [18] - GPM for polyurethane was 29.1% in 2Q25 [22] - **Petrochemicals**: - Sales down 12% yoy, with a price decline of 18% yoy [18] - GPM turned negative at -0.4% in 1H25 [18] - **Specialty Chemicals**: - Sales up 20% yoy, with a price decline of 11% yoy [18] - GPM was 22.1% in 2Q25 [22] Market Dynamics - **Tariff Impact**: MDI exports to the US were significantly affected by tariffs, with exports down 48% yoy [1][18] - **Price Spread Recovery**: Anticipated recovery in price spread entering 3Q25 due to tariff de-escalation and supply constraints from Covestro [2] - **Cyclical Recovery**: The worst seems over, but recovery may be gradual [1][2] Future Outlook - **Revised EPS Estimates**: 2025E-26E EPS estimates reduced by 31%-40% [3] - **Stock Valuation**: Trading below mid-cycle EV/EBITDA, indicating potential for recovery [3] - **Polyurethane Chain**: Positioned to benefit from cyclical recovery due to favorable supply/demand dynamics [3] Additional Insights - **Operational Efficiency**: Strong operational cash flow of Rmb9.95 billion, 3.3 times net profit generation [20] - **Debt Position**: Slight increase in net gearing ratio to 87.8% [20] - **Market Position**: Wanhua is ranked 3rd in M&A within the China Advanced Materials & Construction sector [5] Conclusion Wanhua Chemical Group's 2Q25 results reflect resilience amidst challenging market conditions, with a focus on operational efficiency and potential recovery in the polyurethane segment. The company is well-positioned for future growth, despite current headwinds from tariffs and pricing pressures.