Incident: The company released its 2022 annual report, achieving full year revenue of 1,996 billion yuan, a year-on-year decrease of 13.35%; realized net profit of 1,095 billion yuan, a year-on-year decrease of 23.72%. 2022Q4 achieved operating income of 486 million yuan, an increase of 6.29% year on year, and realized net profit of 224 million yuan, a year-on-year decrease of 8.82%.
Comment:
The downstream slump led to a decline in iron concentrate, putting pressure on the company's performance. Affected by the start of real estate and infrastructure projects falling short of expectations, the sales price of the company's vanadium-titanium-iron concentrate fell 25.08% to 539 yuan/ton in 2022, sales volume fell 2.22% to 1.38 million tons, and gross margin fell 10.97 pcts to 55%, dragging down the company's overall revenue and net profit. In terms of titanium concentrate, although the downstream titanium dioxide industry's growth fell short of expectations, the company's sales price of titanium concentrate in 2022 bucked the trend and rose by 1.76% to 2,406 yuan/ton. Sales volume fell slightly by 8.02% to 493,000 tons, and the annual gross profit margin of titanium concentrate was 81%. On a quarterly basis, the company's 2022 Q4 revenue increased 6.29% year on year to 486 million yuan, but the gross margin increased 11.11 pct year on year to 67.41%, and profitability improved marginally. However, due to changes in sales expense accounting rules and the decline in Dongfang Titanium's net profit, the company's net interest rate for 2022/Q4 fell 7.63 pct to 46.05% year on year, and net profit to mother fell 8.82% year on year to 224 million yuan.
The company's layout is based on the development strategy of “horizontal mergers and acquisitions and vertical extension of the industrial chain”. Part of the 60,000-ton energy-grade titanium (alloy) material industry chain project is small-particle titanium sponge, which is sold directly to foreign countries; some titanium products processed into standards such as titanium ingots and titanium plates are sold abroad. The project is currently in the pre-construction approval stage and is progressing steadily according to the plan. The company expects to be put into operation 24 months after construction starts. The 50,000 ton iron phosphate project has been approved and has entered the main plant construction stage. The project makes full use of ferrous sulfate, a by-product of the participating company Dongfang Titanium, and the rich phosphate resources of Sichuan and Yunnan provinces, as well as abundant green power resources in Panxi. The company expects that carbon peaks and carbon neutrality will not increase the company's costs in the future. Compared with non-green power companies, the advantages are even more obvious. Furthermore, in recent years, research has been on technology related to the direct extraction of vanadium from vanadium-titanium-magnetite and technology for preparing vanadium electrolytes. In the future, vanadium-related projects will be launched in due course according to the development of the vanadium industry, industrial policies, etc. In addition, the company plans to participate in the bankruptcy and restructuring of the Jingji Minerals Company. The Xiaoheijing Iron Ore it owns belongs to the same vein and the same mineral type as Anning's Panjiatian Iron Ore. If the integration is successful, it can increase the company's resource reserves. In the future, it is expected to increase the company's profit level and maximize the value of resources.
Titanium ore operated at a high level in 2023, and the company's performance was stable and improving. According to Tuduoduo's forecast, the global titanium dioxide market is expected to increase production capacity by about 900,000 tons in 2023, and there is no significant increase in global titanium ore resources. According to our statistics, the new global titanium ore projects in 2023-2025 include: ① Image's Atlas project is scheduled to be put into operation in 2024Q1, producing 24-260,000 tons of titanite; ② Blue Jay's Dundas project plans to build 440,000 tons/year of ilmenite, which is currently in the research stage; ③ Sheffied's 315,000 tons/year titanite project It is expected to be put into operation in 2024; ④ Longbai Group plans to produce 2.48 million tons of titanium concentrate per year by the end of the “14th Five-Year Plan”. In summary, the amount of new titanium ore projects is far less than the number of new titanium dioxide projects. We expect that the price of titanium ore will be supported in the future or may remain at the price level of 2,500 yuan/ton. Furthermore, with future infrastructure projects starting one after another and expected price increases for vanadium products, the price of vanadium-titanium-iron concentrate may rebound.
Profit forecast and investment rating: According to the company's project construction progress, we expect the company's net profit to be 12.63, 14.97, and 1,525 billion yuan, respectively, and EPS of 3.15, 3.73, and 3.80 yuan/share. The PE corresponding to the closing price of March 29 is 12x, 10x, and 10x, maintaining the company's “buy” rating.
Risk factors: The construction progress and additional depreciation of the fund-raising project may cause the risk that the performance will not meet expectations; the risk that the land use rights and EIA approval required for the fund-raising project have not been obtained; and the price of titanium ore will fall.