Sunway's shares only have 600 million yuan of monetary funds and plan to invest 14.8 billion yuan to build chemical and supporting projects

On October 20, Sunway (SH603033, stock price 17.19 yuan, market value 17.74 billion yuan) announced that its subsidiary Inner Mongolia Sunway New Materials Co., Ltd. and the Administrative Committee of Wuhai High-tech Industrial Development Zone signed the Investment Framework Agreement, the former intends to invest in the construction of 700,000 tons/year BDO (1,4-butanediol), 500,000 tons/year degradable plastic PBAT (thermoplastic biodegradable plastic), 240,000 tons/ Annual high-end polyether material PTMEG (a chemical substance), 100,000 tons/year NMP (N-methyl pyridanone) and supporting green power projects.

Data source: Oriental Fortune Network Visual China Map Yang Jing Cartography

According to the announcement, the first phase of the production capacity (annual output of 300,000 tons of BDO, etc.) of Sunway's construction in Wuhai has been basically completed, the second phase was originally planned to be 600,000 tons/year BDO, 500,000 tons/year PBAT, 240,000 tons/year PTMEG, 100,000 tons/year GBL (γ-butyrolactone) and 50,000 tons/year NMP, this time the new BDO annual production capacity of 100,000 tons, NMP annual production capacity of 50,000 tons, and new supporting green power production capacity.

However, the reporter of "Daily Economic News" noted that the total investment of the above cooperation is 14.8 billion yuan, including the original second phase planning investment of 8.7 billion yuan, and the new investment in this plan is 6.1 billion yuan, of which BDO and NMP investment of 1.3 billion yuan, green power investment 4.8 billion yuan. As of June 30 this year, the company's net assets were 3.425 billion yuan, the asset-liability ratio reached 62.2%, and the balance of book currency funds was only 609 million yuan.

It is planned to build supporting green power projects

According to the Investment Framework Agreement signed by the two parties, the Administrative Committee of Wuhai High-tech Industrial Development Zone supports Sunway's subsidiary to invest in the construction of 700,000 tons/year BDO, 500,000 tons/year PBAT, 240,000 tons/year PTMEG and 100,000 tons/year NMP in the low-carbon industrial park of Wuhai High-tech Industrial Development Zone, mainly producing and operating BDO, PBAT, PTMEG, NMP and other products.

At the same time, the Administrative Committee of Wuhai High-tech Industrial Development Zone also supports Sunway's subsidiary to make full use of the advantages of Wuhai's scenery and solar energy, invest in the construction of supporting green power projects, build a green and low-carbon coal chemical production base, and plan to complete the project investment and construction and put into operation before 2026.

According to public information, Sunway's business covers petrochemical rubber, rail transit, fine chemicals and thermoelectric, and its product layout includes polyester chips, polyester industrial yarn, rubber tape, rail transit pre-products, as well as fine chemical products such as power steam and BDO and PBAT, which are not related to the new energy industry.

For the construction of green power projects, the reporter of "Daily Economic News" found that this may be closely related to Wuhai's local national economic and social development plan.

According to the "2023 Wuhai National Economic and Social Development Plan" released on January 18, the Wuhai Municipal People's Government requires the construction of two 100-billion-level industrial clusters of modern coal chemical industry and silicon-based new materials, and 5 industrial chain groups of more than 10 billion in fine chemicals, metallurgical building materials, equipment manufacturing, modern energy, and degradable materials; Expand and strengthen the new energy industry, accelerate the construction of the first phase of pumped storage power stations, and realize the grid-connected power generation of 21 distributed photovoltaic projects with a total installed capacity of 51,600 kilowatts.

Among them, the Wuhai Municipal People's Government requires vigorously developing the new materials industry, accelerating the construction of projects with an annual output of 1.51 million tons of BDO and 1.46 million tons of degradable materials, promoting the commissioning of three degradable material industry projects with an investment of more than 10 billion yuan, and building an important biodegradable material production base in China.

However, even if Sunway's shares bear the ardent hopes of the local government, they may not be able to make that much money for a while. According to the 2023 half-year report, the company achieved revenue of 1.844 billion yuan in the first half of the year, a slight decrease of 2.81% year-on-year, and a net profit attributable to the parent of 116 million yuan, a year-on-year increase of 21.8%; As of June 30, the company's net assets were 3.425 billion yuan, the asset-liability ratio reached 62.2%, and the balance of book currency funds was only 609 million yuan.

In this regard, Sunway said in the announcement that the investment amount of the project is large, the source of funds is uncertain, the company will actively finance through bank credit and capital market and other channels, and does not rule out the introduction of professional institutions to promote project construction in the form of joint ventures and other forms of cooperation according to the actual situation, and with the first phase of the BDO project to achieve sales, the company's revenue scale and cash flow will also increase, but there may still be risks that the fundraising progress or financing scale does not meet expectations, which will affect the progress of project construction.

BDO prices fluctuated to the downside during the year

According to Zhiyan Consulting, the upstream raw materials of BDO mainly include limestone, coal, coking coal and methanol; The middle stream of the industrial chain is BDO industry manufacturing; The downstream application of the industrial chain is extensive, mainly including PTMEG, PBT, THF, polyurethane, GBL, etc. Specifically, from the perspective of the proportion of downstream applications, the main downstream of China's BDO is PTMEG, PBT, γ-butyrolactone, slurry, PBS/PBAT, thermoplastic elastomer, etc.

In 2016~2021, the downstream demand of BDO accounted for a large proportion of PTMEG/THF and γ-butyrolactone, and the market accounted for 54.6% and 12.6% respectively in 2021, and the rapid market share increase was mainly PTMEG (44% in 2016) and PBS/PBAT (less than 2% in 2016).

In 2021, the price of BDO has grown explosively, domestic BDO industry enterprises have frequently expanded production, and with the decline of market prices in 2022, the capacity utilization rate of enterprises is not high, and the market prosperity is declining. According to statistics, in 2022, the production capacity of China's BDO industry will be about 3.67 million tons, the output will be about 2.11 million tons, and the capacity utilization rate will drop to 57.5%. In terms of demand, with the sharp decline in market prices, domestic market demand has increased, data shows that the demand for China's BDO industry in 2022 will be about 2.07 million tons, an increase of 18.0% year-on-year.

In terms of market size and price, according to statistics, the market size of China's BDO industry in 2022 will be about 31.76 billion yuan, a year-on-year decrease of 29.0%. This is mainly due to the decline in prices in the domestic market and the decrease in demand in overseas markets. The average market price decreased from 25,600 yuan/ton in 2021 to 15,300 yuan/ton in 2022.

Entering 2023, domestic BDO prices continue to fluctuate downward, and since the beginning of September this year, BDO prices have fallen sharply from 11,700 yuan / ton. According to the data of the business agency, on October 20, the mainstream negotiation of spot bulk water in South China was 10300~10400 yuan / ton; Barrel negotiation 11600~12000 yuan / ton (acceptance delivery). East China spot bulk water mainstream negotiation 10200~10300 yuan / ton; Barrel negotiation 11400~11800 yuan / ton (acceptance delivery).

The business agency believes that the BDO market in South China has been running weakly recently, the overall market atmosphere is light, the actual order transaction is less heard, and more wait and wait for settlement, some holders are not confident in the new cycle, and the actual order is low-end in the market to negotiate; The BDO market in East China is weak and volatile, and the supply side is mainly stable, but the downstream real order follow-up is light, the pressure of inventory in the market still exists, the shipment mentality of the holding manufacturers, and the overall market is weak and downward.

In this regard, Sunway also said in the announcement that although the company has done a lot of research and demonstration on the future market prospects of BDO and other products in the early stage, there will still be the possibility of uncertain impact on the realization of the economic benefits of the project due to changes in the above factors, resulting in the future business market demand growth is lower than expected, or the progress of business marketing is deviated from the company's forecast, and there may be a risk that the expected benefits will not be achieved after the implementation of the investment project.

It is worth mentioning that on October 23, the stock price of Sunway shares closed at 17.19 yuan / share, down 1.88%.

封面图片来源：Data source: Oriental Fortune Network Visual China Map Yang Jing Cartography