UBS: Hualu Hengsheng: 2025 Net Profit In Line, Spreads Improving
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UBS issued an initial assessment of Hualu Hengsheng's results, noting that 2025 net profit met expectations while product spreads improved. Full-year revenue and net profit attributable to shareholders fell 10% and 15% year-on-year to RMB 31 billion and RMB 3.3 billion, respectively. Fourth-quarter net profit rose 17% sequentially to RMB 942 million, primarily because income tax expenses dropped 88% to RMB 24 million after the Jingzhou subsidiary obtained high-tech enterprise certification, qualifying for a 15% tax rate.
UBS's spread tracking model indicates the main product spread index remained broadly stable in the fourth quarter. However, the average spread index for the first quarter of 2026 to date has risen 16% sequentially, with average spreads for urea, methanol, DMF, acetic acid, and adipic acid increasing by RMB 159, 367, 107, 98, and 810 per ton, respectively. This improvement reflects recovering seasonal demand in March and supply disruptions in the Middle East affecting methanol and benzene.
Across segments, fertilizer revenue held steady at RMB 7.3 billion with a gross margin up 2.4 percentage points, while organic amines and new energy materials saw mixed results. UBS raised its 2026-2028 EPS forecasts by 3-12% to RMB 2.51, 2.95, and 3.51. Based on a DCF valuation with an unchanged WACC of 8.6%, the target price increases from RMB 51.2 to RMB 53.0, implying 18 times 2027E price-to-earnings. UBS maintains its Buy rating, projecting a total return of 43.6% including a 1.0% dividend yield. Rising coal prices present a key cost-side risk to monitor.