Introduction to this report:

The company's performance for the first half of 2023 fell short of expectations. Demand for titanium dioxide and titanium slag is weak, suppressing the company's performance. The company's vanadium product production continues to rise, and production capacity is being expanded through extended mergers and acquisitions. It is expected that vanadium products will be a strong support for performance.

Key points of investment:

Maintain ratings to increase holdings. The company achieved revenue of 7.627 billion yuan in the first half of 2023, a year-on-year decrease of 7.53%, and net profit of 603 million yuan from the previous year, a year-on-year decrease of 43.81%. The company's performance was slightly lower than expected. Considering the decline in the price of titanium dioxide, the company lowered its 2023-25 EPS forecast to 0.16/0.24/0.25 (originally 0.22/0.27/0.29 yuan). Considering the decline in valuation levels of companies in the same industry, referring to similar companies, the company was given a valuation of 30 times PE in 2023, lowered the company's target price to 4.8 yuan (previously 6.3 yuan), and maintained the “increase in holdings” rating.

Production of vanadium products continues to grow, and epitaxial mergers and acquisitions expand production capacity. In the first half of 2023, the company produced 242,400 tons of vanadium products, an increase of 3.23% over the previous year, and the company's vanadium product production continued to expand. At the same time, the company announced the acquisition of 51% of Yangrun Technology's shares at a price of 54.8251 million yuan. Yangrun Technology's vanadium products have a design production capacity of 4,200 tons/year, with an output of 3,485 tons in 2022. After the company's acquisition was completed, its own production capacity increased to 44,200 tons, and we expect the company's vanadium product production to rise further.

Demand for titanium dioxide is weak, suppressing performance. In the first half of the year, the company produced 1317 and 106,400 tons of titanium dioxide and titanium slag, respectively, and achieved revenue of 1,761 and 458 million tons respectively. The year-on-year decrease was 16.65% and 20.46%, respectively. Demand for titanium dioxide was weak and prices declined. The company continues to invest in 60,000 tons of molten salt titanium dioxide projects, and it is expected that the production of titanium dioxide will increase further in the future.

The development of vanadium batteries from demonstration projects to commercialization will drive demand for vanadium. The company continues to cultivate in the fields of vanadium products and vanadium electrolytes for vanadium batteries. In February '23, the company signed a “Strategic Cooperation Framework Agreement” with the Panzhihua Government and Dalian Rongke to jointly promote the industrialization of vanadium batteries. We expect demand for vanadium to gradually rise following the commercialization of vanadium batteries.

Risk warning: Vanadium battery technology is progressing slowly, and real estate demand continues to decline.