Event Overview: On October 25, the company released its three-quarter report for 2022: in the first three quarters of 2022, the company achieved revenue of 5.099 billion yuan, an increase of 10.5% over the previous year; net profit of 509 million yuan, an increase of 8.1% over the previous year; net profit of non-attributable income of 479 million yuan, an increase of 9.4% over the previous year. In 2022Q3, the company achieved revenue of 1,721 million yuan, a year-on-year decrease of 3% and a year-on-month decrease of 4.1%; net profit of 151 million yuan, a year-on-year decrease of 21.6% and a decrease of 7.9% month-on-month; net profit of non-attributable net profit of 139 million yuan, a year-on-year decrease of 24.1% and a decrease of 5.7% month-on-month. The Q3 results fell slightly short of expectations.
Comment: Decline in sales of titanium products drags down Q3 performance
① Volume: In the third quarter, sales of titanium products fell 6.89% month-on-month. The sales volume of titanium products in the first three quarters of 2022 was 24307.97 tons, +24.24% over the same period last year. Q3's titanium product sales volume was 8215.86 tons, +4.62% year on year, and -6.89% month on month. The civilian goods business is expected to be relatively weak, leading to a month-on-month decline in titanium product sales in the third quarter.
② Price: The price of titanium fell month-on-month, and Q3 gross margin fell 4.99pct month-on-month. The prosperity of the titanium industry declined. Q3 titanium plates were 123,900 per ton, -2.41% from the previous year, +2.96% from the previous year, and the price of titanium sponge as raw material 80,300 per ton, -2.76% from the previous year, +15.11%. 22Q3 gross margin fell 1.85 pct year on year and 4.99 pct month on month.
Future core highlights
① The company is a leading titanium company in China, and the “14th Five-Year Plan” plan is to become a strong enterprise in the international titanium industry. The company ranks first in the country in terms of annual titanium production and is one of the most important suppliers of titanium materials for domestic and export aerospace. In 2021, the actual production capacity of processed titanium materials reached 30,938 tons. The company's “14th Five-Year Plan” plan is to reach a production capacity of 50,000 tons of titanium products, and is expected to build a strong enterprise in the international titanium industry.
② High-end titanium projects are gradually put into production, and the titanium product structure continues to be optimized. (1) The space-grade wide-width titanium alloy sheet and foil project is expected to increase the production of sheets by 1500 tons/year, titanium strip by 5,000 tons/year, and foil by 500 tons/year; (2) The high-quality titanium ingots, pipes and profiles project is expected to increase production of titanium ingots by 10,000 tons/year, pipes by 290 tons/year, and titanium alloy profiles by 100 tons/year; as the titanium project is gradually put into operation, the company's titanium product structure will be further optimized at that time.
③ Production of titanium sponge and zirconium tetrachloride expanded, and the company's raw material self-sufficiency rate increased. The expansion project with an annual output of 12,000 tons of titanium sponge and 3,000 tons of zirconium tetrachloride is progressing gradually. As titanium sponge production capacity is gradually built and put into operation, the company's raw material self-sufficiency rate has increased to ensure the stability of the company's performance.
Investment suggestions: Benefiting from the development of downstream fields such as aerospace, the company's product demand space is broad. As high-end product projects are put into operation, the company's profitability is expected to continue to rise. We expect the company's net profit from 2022-2024 to be 683/926/1,238 million yuan, and PE corresponding to the current price will be 31/23/17 times, in that order, maintaining the “recommended” rating.
Risk warning: downstream demand falls short of expectations; risk of raw material price fluctuations; project progress falls short of expectations.