J.P. Morgan upgrades Wanhua Chemical to Overweight and raises the target price to Rmb90

Overview

This is a J.P. Morgan company research and rating change report on Wanhua Chemical's A-shares. The core conclusion is that Wanhua Chemical's second-quarter earnings guidance was significantly above expectations, driven primarily by wider MDI/TDI spreads and stronger profitability from its ethane cracking facility. The research team consequently raises its FY26-27 net profit forecasts and upgrades the stock from Neutral to Overweight.

Core views

The report believes that the more than 20% share price decline since April 13 has largely priced in concerns over lower oil prices and weakening MDI/TDI spreads. Margins have recovery potential as Middle East supply disruptions, the peak MDI maintenance season, and ECC's cost advantage over NCC persist. The current share price implies approximately 12x one-year forward P/E, while FY25-27E EPS CAGR is 23%, making the valuation attractive relative to growth.

Analysis framework

The analytical framework focuses on the earnings guidance breakdown, product spread movements, ethane cracking economics, supply and demand disruptions, valuation multiples, and earnings forecast revisions. The report compares 2Q26 net profit with 1Q26 and full-year consensus expectations, and incorporates MDI/TDI capacity disruptions, Asia PE prices, US ethane prices, the oil price range, and the historical five-year average P/E to determine earnings and target price assumptions.

Methodology notes

• Valuation methodsOne-year forward P/E valuation

  Target price based on a 15x one-year forward P/E

  The Jun-27 target price of Rmb90 is based on a 15x one-year forward P/E, which the report says is in line with the historical average over the past five years.

• Earnings forecastsUpward revisions to net profit and EPS forecasts

  FY26-27 net profit forecasts raised by 21%/10%

  The research team raises its FY26 net profit forecast to Rmb19bn and FY26E Adj. EPS from Rmb5.03 to Rmb6.07, reflecting stronger-than-expected ECC profitability, improvements in the HDI/PU chain, and the ramp-up of new battery materials facilities.

• Industry spreadsMDI/TDI spreads and relative ECC/NCC economics

  Spread recovery and ethane cracking cost advantage

  The report uses China MDI/TDI spreads, Asia PE spot prices, US ethane prices, and the oil price environment to assess margin recovery, and expects ECC margins to continue outperforming NCC at oil prices of US$70-80 per barrel.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Wanhua Chemical - A (600309.SS)

  Research subject; upgraded to Overweight

  Strengths

  Leading global MDI/TDI/ADI market shares, significant MDI cost advantages, increasing contribution from ECC facilities, and a substantial upgrade to FY26E earnings.

  Weaknesses

  The share price was previously pressured by falling oil prices and declining MDI/TDI spreads; the chemical demand cycle remains volatile.

  Comparison

  At approximately 12x one-year forward P/E versus FY25-27E EPS CAGR of 23%, the report considers the valuation attractive.

  Risks

  Escalation of trade tariffs, global recession weakening chemical demand, and higher China MDI tariffs imposed by European and US allies.

• China chemicals industry/polyurethane chain

  Industry backdrop and source of earnings drivers

  Strengths

  MDI/TDI supply disruptions, the peak maintenance season, and price increases could support near-term spreads.

  Weaknesses

  Oil, naphtha, PE, and MDI/TDI spreads are all affected by macroeconomic and supply-demand disruptions.

  Comparison

  ECC is expected to continue outperforming NCC in a US$70-80 per barrel oil price environment.

  Risks

  Changes in the Middle East situation, freight rates, the pace of supply recovery, and weaker demand could alter the spread outlook.

Key data

• 2Q26 preliminary net profitRmb6.1-6.7bnUp 100-120% year on year and 68-80% sequentially, representing the second-highest quarterly net profit on record.
• 1H26 preliminary net profitRmb9.8-10.4bnEquivalent to 56-59% of the FY26 Bloomberg consensus estimate of Rmb17.6bn.
• FY26/FY27 net profit forecast adjustment+21%/+10%FY26 net profit forecast raised to Rmb19bn.
• FY26E Adj. EPSRmb6.07Previous forecast was Rmb5.03, representing a 20.8% increase.
• FY27E Adj. EPSRmb6.08Previous forecast was Rmb5.55, representing a 9.5% increase.
• Target priceRmb90.00Jun-27 target price; previous Dec-26 target price was Rmb80.00.
• Current priceRmb71.05Price date: July 7, 2026.
• Implied upside27%Based on the Rmb90 target price and current share price.
• Valuation12x 1-year forward P/EThe report considers this attractive relative to the FY25-27E EPS CAGR of 23%.
• Global market shareApproximately 30% for MDI, 19% for TDI, and 21% for ADIThe company is one of the world's largest polyurethane producers.

Impact & implications

The investment implication is that if ECC margins remain resilient and tight MDI supply remains difficult to alleviate quickly in the third quarter, upward earnings revisions for Wanhua Chemical could support a valuation re-rating. The rating and target price upgrades indicate increased sell-side confidence in earnings recovery and valuation re-rating over the next year.

Risks

• Further escalation of trade tariffs between the US and China.
• Rising global recession risk leading to weaker chemical demand.
• Higher tariffs on Chinese MDI imposed by Europe or US allies.
• Changes in oil, naphtha, and PE prices could erode ECC's relative advantage.
• If Middle East capacity disruptions recover quickly, tight MDI/TDI supply could ease.

What to watch

• The final 2Q26 results relative to the preliminary guidance range and the proportion of 1H26 net profit represented by the full-year forecast.
• Sustained profitability after the Yantai #1 ethane cracker reaches full utilization.
• Trends in Asia PE spot prices and US ethane prices.
• China MDI/TDI spreads, BASF maintenance, and the pace of global MDI/TDI supply recovery.
• The ramp-up of new battery materials facilities and their contribution to FY26-27 earnings forecasts.
• Whether Wanhua Chemical's one-year forward P/E remains below growth expectations.