Event: On April 26, the company released the first quarter report of 2023. The company achieved revenue of 445 million yuan in 2023, -25.12% year on year and -8.41% month on month; realized net profit of 232 million yuan, -34.58% year on year, +3.45% month on month; achieved net profit of 228 million yuan after deducting non-net profit of -34.89% year on year, +4.89% month on month.
Titanium concentrate: There has been a decline in titanium ore performance, mainly due to the fact that downstream demand for titanium dioxide recovered less than expected, and titanium ore prices declined year-on-year. According to data from Tu Duoduo, China's titanium dioxide production in the first quarter of 2023 was about 930,000 tons, down about 10% from the previous year, mainly due to weak downstream demand for titanium dioxide compounded by the impact of maintenance and production cuts during the Spring Festival holiday. The price of the company's titanium concentrate in the first quarter was around 2,350 yuan/ton, a decrease of about 6% compared to 2,500 yuan/ton in the first quarter of last year. Titanium dioxide companies increased prices three times in the first quarter due to cost pressure, which supported the maintenance of high titanium ore prices.
Iron concentrate: The year-on-year decline in iron ore prices dragged down overall performance. Iron ore prices were high in the first quarter of last year. Demand declined due to the subsequent impact of the epidemic, and iron ore prices continued to fall. The average price of iron ore in the first quarter of 2023 was 140 US dollars/ton, down 17% from the previous year. The decline in iron ore prices dragged down 23Q1 performance.
Domestic infrastructure demand recovered in the first quarter, and demand for iron ore increased, driving a month-on-month increase in iron ore prices. Iron ore prices in 23Q1 increased 26% month-on-month, thus driving the company's profit in the first quarter to improve month-on-month.
The company invested in energy titanium and iron phosphate projects to extend vertically into the industrial chain, opening up space for future growth. 1) 60,000 tons of energy-grade titanium: In September 2022, the company raised 5 billion yuan and plans to invest 7.2 billion yuan to build a full industry chain project with an annual output of 60,000 tons of energy-grade titanium (alloy) materials. The construction period is 2 years. 2) 50,000 tons of iron phosphate: In May 2022, the company plans to use ferrous sulfate, a by-product of titanium dioxide by-product of the participating company Dongfang Titanium Industry, as a raw material to combine the rich phosphate resources of Yunnan, Sichuan to invest in a project with an annual output of 50,000 tons of iron phosphate. The construction period is 1 year, and it is expected to be completed and put into operation in the first half of the year. The company makes full use of its own resource advantages to develop downstream titanium and iron phosphate vertically. Domestic demand for high-end titanium and iron phosphate is strong, and the completion, commissioning and release of the project will open up room for growth in the company's performance.
Investment advice: Under a pattern of tight supply and continued growth in demand, titanium concentrate prices are expected to continue to operate at a high level. It is expected that the company's titanium concentrate business profits will rise steadily. Along with the production and release of energy titanium and iron phosphate, as well as the increase in the value of vanadium in vanadium-titanium-iron concentrates, the company's performance is expected to open up room for growth. We expect the company's 2023-2025 revenue to be 27.5/39.7/7.744 billion yuan respectively, net profit of 1,277/15.28/2,077 billion yuan, EPS is 3.19/3.81/5.18 yuan/share, and the corresponding PE is 11/10/7 times respectively, giving it an “increase in holdings” rating.
Risk warning: the risk of a sharp drop in iron ore prices; the construction progress of fund-raising projects falls short of the expected risk; demand for titanium dioxide falls short of the expected risk.