Event: the company released its 2019 annual report on March 31. During the reporting period, the company achieved operating income of 617 million yuan, + 5.15% year-on-year, and net profit of 147 million yuan, which was-18.54% compared with the same period last year. The quarterly report of 2020 was released on April 28. During the reporting period, the operating income was 165 million yuan, + 22.03% compared with the same period last year,-7.3% compared with the previous year, and the net profit returned to the mother was 35.34 million yuan.

Year on year + 1.2%, month on month + 11.3%.

The dual-brand strategy competes for the domestic market, and the gross profit margin decreases with revenue growth. In 2019, under the background of the intensification of global trade frictions and the recession of the automotive paint industry, the company's pearlescent materials business achieved revenue growth, mainly due to: (1) the company adjusted its market strategy in a timely manner, aiming at the domestic market to launch a more cost-effective "Moore" brand, driving sales growth. (2) the company's cosmetic-grade pearlescent materials have won the EU COSMOS organic certification, and the growth of high-end automotive and cosmetic-grade pearlescent materials has been maintained. The combined effects of subsidized income (other income decreased by 4.893 million yuan compared with the same period last year), exchange income (down 6.954 million yuan from the same period last year), decline in investment income (down 6.211 million yuan from the same period last year), interest expenses (up 4.4163 million yuan from the same period last year) and increase in foreign donations totaled 24.6 million yuan. In 2019, the company achieved a net profit of 1.47 billion yuan, a decrease of 33.403 million yuan, that is, 18.54 percent. At the same time, due to the low gross margin of the "Moore" brand products, the company's overall gross profit margin fell by 1.57pct to 44.56% in 2019 to 44.56%. The gross profit margin of 2020Q1 decreased by 5.26pct to 41.42% compared with the same period last year. In 2019, the net cash flow of the company's operating activities was 141 million yuan, + 101% compared with the same period last year, which is equivalent to the level of net profit. With the full completion and commissioning of the fund-raising project, the company now has an annual production capacity of 30,000 tons of pearlescent materials and 10,000 tons of synthetic mica, making it the largest pearlescent material production enterprise in the world. in the future, it is planned to build an annual production capacity of 50,000 tons of pearlescent materials and 20,000 tons of synthetic mica.

Titanium dichloride project ensures the supply of raw materials and reduces costs. Fushi New Materials, a wholly owned subsidiary, has an annual production capacity of 200000 tons of titanium dichloride, which was put into trial production on March 28, 2019, and is expected to reach production in August 2020, when it will completely replace the purchased raw material titanium tetrachloride. The project adopts the first set of technical methods for the preparation of titanium dichloride and ferric trichloride by extraction, which is independently developed in the world. the product quality and performance meet or exceed the design requirements, while ensuring the supply of raw materials and greatly reducing the cost. further improve product quality. The company plans to build an annual production capacity of 4 million tons of titanium dichloride and 4 million tons of ferric trichloride in the future.

Speed up the construction of high-end titanium dioxide projects. According to the company's annual report, the wholly-owned subsidiary Zhengtaixin material has an annual production capacity of 100000 tons of high-end titanium dioxide in September 2019, and the first production line of 100000 tons of high-end titanium dioxide and 100000 tons of high-end iron trioxide is expected to be put into production in August 2020. at the same time, the second production line of 100000 tons of high-end titanium dioxide and 100000 tons of high-end iron trioxide is expected to be put into production in December 2020. The project adopts the first set of extraction process independently developed by the company to prepare high-end titanium dioxide. In the future, we plan to build an annual production capacity of 500000 tons of high-end titanium dioxide and 500000 tons of high-end iron oxide. The company aims to build a global comprehensive high-end material supplier with core competitiveness.

Profit forecast and rating. Assuming that the titanium dioxide project is put into production smoothly, we estimate that the return net profit of the company from 2020 to 2022 will be RMB 343,629 million respectively, corresponding to EPS0.44/0.73/1.34 yuan, times as much as PE in 60-36-19. Consider that the company is the leader of pearlescent materials, and the project of high-end titanium dioxide under construction is flexible and gives a rating of "increasing holdings".

Risk tips: high-end market development is not as expected, product prices fluctuate sharply, and the commissioning of new projects is not as expected.