Incident: The company released its report for the third quarter of 2022. Q3 achieved operating income of 434 million yuan, a year-on-year decrease of 31.22%; realized net profit of 214 million yuan, a decrease of 49.75% over the previous year; net profit after deducting non-return to the mother was 216 million yuan, a decrease of 48.79% over the previous year; EPS was 0.53 yuan/share, a decrease of 49.76% over the previous year.
Comment:
Under the influence of the epidemic, the sharp drop in the volume and price of the company's vanadium-titanium-iron concentrate dragged down the company's performance. The company's 2022 Q3 revenue and net profit of Fumo fell 31.22% and 49.75% year-on-year to 434 million yuan and 214 million yuan respectively, and Fumo's net profit from January to September 2022 fell 26.79% year-on-year to 871 million yuan. Mainly due to the severe environment of the epidemic, the company continued to be affected by the fact that downstream real estate and planned infrastructure projects fell sharply compared to expectations, and the price of vanadium iron and titanium concentrate fell sharply year on year. At the same time, the transportation of products sold by the company was also affected by the epidemic. Sales volume declined, and the sharp drop in volume and price led to a decline in the company's Q3 revenue and profit.
The company's horizontal expansion and vertical expansion strategies are progressing steadily. The company's 60,000-ton energy-grade titanium (alloy) material industry chain project is currently in the pre-construction approval stage. The five-year construction cycle was shortened from the initially planned five-year construction cycle to a two-year construction period, and the investment amount was reduced from 1 million yuan to 7.2 billion yuan. The company has mastered advanced technology for large-scale production of titanium foam and titanium materials. The titanium project will help the company achieve a vertically integrated industrial chain layout of “titanium ore-titanium (alloy) materials”, enhance the company's overall competitiveness and profitability, reshape the industry pattern, and expand the large-scale application of titanium products in the fields of hydrogen energy and oil extraction. The company's 50,000-ton lithium iron phosphate project has been approved and has entered the construction phase. According to the company's plan, it is expected to be put into operation in the second half of next year. Under the new energy boom cycle, the price of iron phosphate continues to rise, and profitability continues to increase.
The profitability of titanium ore is highly stable and can support the company's performance. According to titanium information, domestic titanium ore has maintained a high level of around 2,500 yuan/ton since the 3rd quarter of 2021, entering 202Q3. The price of titanium ore loosened slightly, but the decline was small. The average price of titanium ore of Anning Co., Ltd. in 2021 was 2,387 yuan/ton, and the average price of titanium ore from January to September 2022 was 2,390 yuan/ton, and the average price of titanium ore in January-September 2022 was 2,390 yuan/ton, and the average price was stable. At the same time, supply of overseas titanium ore is tight due to declining grades and resource depletion. Coupled with the epidemic's maritime transport interference, imported titanium ore prices are high and strong. Domestic titanium ore prices are supported by the price of domestic titanium ore as an alternative, because we believe that titanium ore prices may continue to remain high in the future, providing performance support to Anning Co., Ltd. to hedge against the risk of falling iron concentrate prices.
Profit forecast and investment rating: Excluding contributions from fund-raising projects, we expect the company's net profit to be 1,273, 1,469, and 1,549 billion yuan respectively from 2022-2024, EPS to 3.17, 3.66, and 3.86 yuan/share. PE corresponding to the current stock price is 11x, 10x, and 9x. Considering the long-term high price of titanium concentrate, the expected reflection of vanadium value, and the performance contribution of titanium alloy and iron phosphate projects after they are put into operation, the company's “buy” rating is maintained.
Risk factors: The construction progress of fund-raising projects and additional depreciation may cause the risk that performance will not meet expectations; the risk that land use warrants and EIA approval required for the fundraising project have not been obtained; and the price of titanium ore falls.