2018 performance is in line with forecast

Oriental Tantalum Industry announced its 2018 results: operating income was 1.095 billion yuan, an increase of 16% over the same period last year, and the net profit belonging to the parent company was 29.89 million yuan, an increase of 1.08x over the same period last year, corresponding to a profit of 0.07 yuan per share, which was within the forecast range. The net profit after deducting non-return was 19.81 million yuan, an increase of 1.05x over the same period last year. 4Q18's single-quarter operating income was 280 million yuan, an increase of 17% over the same period last year, a decrease of 8% from the previous quarter, and a net profit of 26.57 million yuan from the previous year, an increase of 280 million yuan over the same period last year and a 17% increase from the previous year. The significant year-on-year improvement in 4Q18 performance was mainly due to a rise in gross profit margin.

Comments: 1) the gross profit margin has improved significantly. In 2018, the comprehensive gross profit margin increased significantly to 15.2% compared with the same period last year, of which the gross profit margin of tantalum-niobium (and alloy) plate increased by 8.0ppt to 21% year-on-year, that of titanium (and alloy) plate decreased by 0.3ppt to-11.5% year-on-year, and that of energy materials sector increased by 4.0ppt to 8.3% year-on-year. 2) the output has decreased. The company is in the processing manufacturing industry, with an output of 7300 tons in 2018, down 29% from the same period last year, and sales of 8112 tons, down 23% from the same period last year. 3) the financial expenses are significantly reduced. In 2018, the company's financial expenses were 5.79 million yuan, a decrease of 87% compared with the same period last year, mainly due to a decrease in interest expenses and an increase in exchange earnings. The financial expense rate in 2018 was 0.5%, a decrease in 4.2ppt compared with the same period last year. 4) the impairment of assets decreased compared with the same period last year. The impairment loss of the company's assets was-1.26 million yuan in 2018 and 19.36 million yuan in 2017, mainly due to the reversal of part of the inventory decline. 5) the cash flow of business activities in 2018 was 62.45 million yuan, a decrease of 73.5% compared with the same period last year.

Trend of development

Asset swap delivery completed. In December 2018, the company completed the transaction with its controlling shareholder, China Color Oriental: buying out the company's titanium branch, photovoltaic materials branch, abrasive materials branch, energy materials branch and related public auxiliary facilities located in Dawukou District Industrial Park, acquire 28% equity interest in Ningxia Co., Ltd. ("West material Institute") of Northwest rare Metal Materials Research Institute, with the difference paid in cash. Western Materials Institute is the only beryllium research and processing base in China, which helps the company to expand the field of non-ferrous materials processing.

Profit forecast

Due to the 18-year improvement in performance compared with the same period last year, we have raised our 20-year profit forecast of 0.06 yuan to 0.05 yuan from 0.06 yuan.

Valuation and suggestion

The company's current share price maintains a neutral rating for 1920 3.1 times Pmax B, but due to improved earnings, the company raised its target price by 23% to 8 yuan, compared with 3.0 times 19max for 1920. That's 2% lower than the current share price.

Risk

Downstream demand is lower than expected.