H1 net profit was -32%, Q2 was -30% /qoq -9%, maintaining the “increase in holdings” rating. The company released its semi-annual report on August 24. 23H1 had revenue of 850 million yuan, yoy -21%, net profit of 440 million yuan (minus non-YOY -32%), yoy -32% (excluding not yoy -32%); Q2 revenue was 400 million yuan, yoy -17% /qoq -10%, yoy -30% /qoq -9%. The company plans to distribute a cash dividend of 5.00 yuan (tax included) for every 10 shares. We expect the company's net profit to be 10.8/12.4/1.39 billion yuan for 23-25 years, corresponding to an EPS of 2.69/3.09/3.47 yuan. Combined with comparable companies' 23-year wind's unanimous expectation of an average of 11xPE, considering the growth potential of new projects and future new materials to enhance product competitiveness, we will give it 13xPE in '23, with a target price of 34.97 yuan, maintaining the “increase in holding” rating.

Overall demand for terminals is weak, and the H1 titanium ore boom is under pressure year on year

Affected by downstream titanium dioxide demand and weak economy, etc., the overall H1 titanium ore market is under pressure. According to Baichuan Yingfu, the average price of the H1 titanium concentrate market is about 2183 yuan/ton, or -5% compared to -5%. The company's titanium concentrate H1 revenue yoy -19% reached 550 million yuan, and gross margin yoy-4pct to 77%. The vanadium-titanium-iron concentrate boom was also relatively weak. The H1 sector's revenue was yoy -26% to 290 million yuan, and gross margin yoy-14pct to 45%. The H1 company's comprehensive gross margin yoy-7pct to 66% (Q2 gross profit margin 66%, yoy-7pct/qoq+0.5pct), and the H1 period expense ratio yoy +1.2pct to 4.9%. At the end of Q2, the balance ratio was only 14%, and the monetary capital was 2.25 billion yuan.

Demand and sentiment for titanium ore are expected to improve. Long-term supply pattern optimization supports profit. According to Baichuan Yingfu, as of August 24, titanium concentrate (Pan 46) was priced at 2,200 yuan/ton, +7.3% year-on-year, and +6.8% from the beginning of the year. In the short term, with the recovery of the domestic economy, demand for downstream terminals such as titanium dioxide is expected to gradually improve. Combined with the release of new production capacity in the titanium dioxide industry and the expansion of applications in emerging fields such as titanium, demand and prosperity for titanium ore are expected to gradually improve, while on the supply side, due to factors such as falling global exploration capital expenditure and reduced high-grade ore, the supply pattern is good, and the titanium ore boom cycle may be long. The company's vanadium titanium magnetite resource endowment will fully benefit.

Relying on the advantages of resource endowments, the final project balance of the company under construction in 23Q2 was 488 million yuan, +247 million yuan from the beginning of the year. The company will actively expand its titanium sponge and titanium business. According to the semi-annual report, the company is steadily advancing fixed-increase projects (it plans to raise no more than 5 billion yuan for 60,000 tons of energy-grade titanium (alloy) materials). Additionally, the 50,000 tons/year iron phosphate project, which plans to invest 500 million yuan to build, has already entered the construction stage. Overall, based on resource endowment conditions, the company is expected to have industrial chain supporting advantages and cost advantages in extending the downstream sector, and the successive implementation of new projects in the future is also expected to bring new profit growth points.

Risk warning: There is a risk that downstream demand will continue to be sluggish, and the production progress of new projects will fall short of expectations.