Event Overview: On March 28, the company released its 2022 annual report: the company achieved revenue of 15.088 billion yuan in 2022, +7.31% compared to the previous year (after adjustment, same below); achieved net profit of 1,344 billion yuan, +1.24% year-on-year; net profit returned to the mother after deduction was 1,297 billion yuan, +29.58% over the same period last year. On a quarterly basis, 2022Q4 achieved revenue of 3.70 billion yuan, +17.40% year on year and +17.88% month on month; achieved net profit of 117 million yuan, -45.65% year on year and -24.20% month on month; net profit returned to the mother after deduction of 110 million yuan, -50.92% year on year and -27.31% month on month.

Comment: The volume and price of vanadium products have risen sharply, and titanium products are under pressure

① Volume: In 2022, sales of vanadium products increased 15.27%, and sales of titanium dioxide and titanium slag fell 3.10% and 16.33%, respectively. The company sold 491,000 tons of vanadium products in 2022 (including vanadium products from Xichang), an increase of 15.27% over the previous year; sales of titanium dioxide were 239,700 tons, down 3.10% from the previous year; and sales of titanium slag were 178,700 tons, down 16.33% from the previous year.

② Price: The company's gross margin decreased by 3.62pct to 16.30%. The market price of vanadium pentoxide in 2022 was +7.6% year on year, and the market prices of titanium dioxide and titanium oxide slag were -13.1% and -4.21%, respectively. In terms of vanadium products, benefiting from rising product prices, the gross margin of the company's vanadium products increased to 32.08% in 2022; in terms of titanium products, due to a slight decrease in the price of titanium products and the increase in unit cost, the gross margin of titanium dioxide and titanium slag fell to 7.60% and 3.28% respectively, and the company's overall gross margin level fell 3.62pct to 16.30%.

Core future highlights

① The successful acquisition of Xichang Vanadium Products+ signed a strategic agreement with Sichuan Desheng Group, and the company's leading position in vanadium products will become more stable. The company successfully completed the acquisition of vanadium products in Xichang in 2021 (production capacity of 18,000 tons of vanadium products), and the current production capacity of vanadium products reached 43,000 tons (measured in V2O5), the largest production capacity in the world. Furthermore, the company signed a cooperation framework agreement with Sichuan Desheng. The two sides plan to set up a joint venture to invest in the construction of a V2O5 vanadium slag processing line with a production capacity of 20,000 tons. The company's future production capacity of equity vanadium products is expected to reach 57,000 tons. At that time, the leading position will become more stable.

② The development prospects of vanadium batteries are broad and are expected to become an important growth point for the company's future performance. In December 2022, the company and Dalian Rongke signed the “2023 Annual Framework Agreement for Cooperation on Vanadium Battery Energy Storage Raw Materials”, agreeing that the two parties will adopt a cooperation model for the purchase and sale of ammonium polyvanadate raw materials. The estimated total volume in 2023 (after vanadium pentoxide) is 8000 tons. If all of the annual framework agreements are successfully implemented, the company expects a total transaction amount of about 1 billion yuan. The development prospects of vanadium batteries are broad, and related business is expected to become an important growth point for the company's future performance in the future.

③ It is planned to build an additional 50,000 tons of molten salt chloride titanium dioxide project. The total amount of capital the company plans to raise will not exceed 2.28 billion yuan for the 60,000 tons of molten salt chloride titanium dioxide project in Pangang and the vanadium pentoxide upgrading project at the Panzhihua Vanadium Plant (1000 tons of high-purity vanadium pentoxide), which will further enhance the competitiveness and market share of the company's products.

Investment advice: The company has the highest production capacity of vanadium products in the world. As the popularity of the vanadium industry recovers and the vanadium battery application market gradually expands, the company's performance can be expected to be released. We expect the company's net profit attributable to the parent in 2023-2025 to be 1,572/1876/2,262 billion yuan in that order, and the corresponding PE will be 27/23/19 times in that order, maintaining the company's “recommended” rating.

Risk warning: downstream demand falls short of expectations; vanadium battery development falls short of expectations; project progress falls short of expectations.