Main points of investment

On October 25, 2022, Vanadium and Titanium shares released three quarterly reports that the company achieved operating income of 11.387 billion yuan in the first three quarters, + 4.39% of the same period last year, and net profit of 1.227 billion yuan, + 10.3% of the same period last year.

Realized deduction of non-return net profit of 1.188 billion yuan, + 52.74% compared with the same period last year. From a single quarter, 2022Q3 achieved operating income of 3.139 billion yuan, year-on-year-17.40%, month-on-month-23.67%; net profit 154 million yuan, year-on-year-63.52%, month-on-month-74.43%. Realized deduction of non-net profit of 151 million yuan, year-on-year-45.17%, month-on-month-75.25%.

Product prices fell, and the company's performance declined slightly. In the Q3 quarter of 2022, the company's performance declined slightly compared with the same period last year, mainly due to a month-on-month decline in the price of the company's main products, vanadium and titanium products.

Domestic titanium dioxide market trading situation is poor, downstream market demand is not good, 2022 Q3 quarter titanium dioxide market prices continue to decline. The rise in raw material costs has led to a lower month-on-month decline in costs than in revenue, which has reduced the company's profit margins. However, we have observed that the decline in the demand for titanium dioxide downstream coatings has slowed down, while the demand for vanadium pentoxide will pick up with the peak season of iron and steel, and the company's profitability is expected to improve gradually.

Enter into the field of vanadium flow battery, the future market value is worth looking forward to. The company is the largest vanadium producer in China, with an annual production capacity of 40,000 tons (equivalent to vanadium pentoxide) and has great influence in both domestic and international markets. On October 11th, the company signed a joint venture agreement with Dalian Rongke Energy Storage Group Co., Ltd., and decided to jointly invest 31.61 million yuan to set up a joint venture company to jointly develop and sell all-vanadium flow battery electrolyte. According to the company announcement, the joint venture company plans to build an electrolyte production line of 2000 cubic meters per year in 2022 and 60000 cubic meters of vanadium electrolyte per year from 2023 to 2024 according to the growth of the vanadium battery energy storage market. Vanadium flow battery has high safety and long cycle life, coupled with the recent national policy to increase the safety requirements of energy storage, vanadium battery may become an important way of large and medium-sized energy storage. Benefiting from the development of all-vanadium flow battery, the company's future market value is still worth looking forward to.

The influence of titanium dioxide by chlorination process is enhanced, and the market recovery is just around the corner. The company is a major domestic supplier of titanium dioxide, with a production capacity of 220000 tons / year of titanium dioxide by sulfuric acid process and 15000 tons / year by chlorination process. With the construction of the project of 60, 000 tons / year, the influence of titanium dioxide by chlorination process will be further enhanced. 2022Q3, the domestic demand for titanium dioxide has shrunk obviously under the influence of the epidemic, but the performance of external demand continues to improve, and the overall supply exceeds demand. With the improvement of China's economic development situation and the completion of relevant policies, the titanium dioxide market is expected to take a turn for the better.

Non-public offerings contribute to the expansion of business territory. During the reporting period, the company actively expanded its new business direction through the non-public offering of shares and the signing of strategic cooperation agreements. On October 25, 2022, the company signed the Strategic Cooperation Agreement with the State Power Investment Group Southwest Energy Research Institute Co., Ltd., and Dalian Rongke Energy Storage Group Co., Ltd. On October 29th, 2022, the company recently announced that it plans to issue non-public shares, raising no more than 2.28 billion for molten salt chlorination titanium dioxide, vanadium battery electrolyte and other projects. The business margin continues to open, and the growth attribute is worth looking forward to.

[investment advice]

The company is the leader of vanadium products industry, the annual production capacity is in the forefront of the industry, titanium dioxide business with the demand for TAL Education Group will gradually recover. During the reporting period, actively expand business boundaries, promote lava chlorination titanium dioxide production capacity construction, enter the future promising vanadium flow battery industry will reshape enterprise value and enhance profit potential. We estimate that the company's operating income will be 14.691 billion yuan, 15.932 billion yuan and 17.636 billion yuan respectively from 2022 to 2024, and the net profit will be 3.574 billion yuan, 4.064 billion yuan and 4.977 billion yuan respectively; the corresponding EPS will be 0.42,0.47,0.58; and the corresponding PE will be 11.77,10.35,8.45 respectively.

In view of the company's good future development prospects, long-term strategic vision and strong ability to seize opportunities, we give "overweight" rating.

[risk Tip]

The impact of the epidemic, product demand is weak

Product prices remain low.

The construction of the project is not as expected.