Matters: the company released its annual report for 23 years. During the reporting period, its revenue reached 7.627 billion yuan, with a decrease of 7.53%. The net profit returned to its mother was 603 million yuan, with a decrease of 43.81%. Of this total, Q2 achieved revenue of 3.678 billion yuan, with a decrease of 10.58% and 6.89%, while the net profit returned to its mother was 274 million yuan, down 53.56% and 16.72% respectively, and the performance was lower than market expectations.

Production increased steadily, and vanadium and titanium prices fell as a drag on the company's performance: during the reporting period, the company produced 24200 tons of vanadium products (in terms of V2O5), up 3.23 percent; titanium dioxide output of 131700 tons (including 7190 tons of titanium chloride), up 1.03 percent; and titanium slag output of 106400 tons, down 7.39 percent from the same period last year.

However, in the same period, the price of vanadium pentoxide fell 6.07% and the price of titanium dioxide fell 21.41%, resulting in a decline in the overall gross profit margin of 5.22pct, which is the main reason for the decline in the company's performance. Among them, the price of vanadium pentoxide fell 18.31% month-on-month in Q2 quarter, the price of titanium dioxide rose 3.95% month-on-month, while the company's net profit decreased 16.72% in Q2 quarter. Vanadium price continued to drop as a drag on Q2 performance.

With the increase of the speed of energy storage and the increase of the proportion of liquid flow, the demand for vanadium is expected to continue to grow. In the first half of the year, two new vanadium extraction enterprises and one vanadium extraction enterprise were added to produce all the vanadium, and the output continued to increase. In terms of downstream demand, the iron and steel industry reduced production and rebar losses in the main application areas, and the demand for vanadium decreased as a whole. Looking forward to the second half of the supply side has no new production capacity and with the real estate regulation continues to promote vanadium demand for steel is expected to stabilize. In the field of energy storage, according to CNESA statistics, the new scale of operation of energy storage in the first half of 2023 is 8.0GW/16.7GWh, which exceeds the new scale level of last year (7.3GW/15.9GWh). CNESA expects to add 15-20GW throughout 2023 and may continue to grow in the second half of the year. According to the July data, liquid flow batteries account for 5% of the new type of energy storage, and the demand for vanadium is expected to continue to grow with the increase of the speed of energy storage and the proportion of liquid flow.

Investment suggestion: due to the higher-than-expected decline in vanadium prices in the first half of the year, we expect the company to achieve a net profit of 13.27 billion yuan per share in 23-25, and 0.19 yuan per share for EPS, corresponding to 0.26 yuan per share of PE. Considering that there is no new supply in the second half of the year, the speed up of energy storage and the increase in the proportion of liquid flow, vanadium prices are expected to hit bottom and pick up, and the company is the global leader of vanadium. Or will fully benefit from the rise in vanadium prices, continue to be given a "holding" rating.

Risk tips: vanadium battery energy storage demand is not as expected; the company's project construction and production schedule is not as expected; titanium price fluctuates greatly and so on.