Core views:
Demand release was compounded by a decline in costs. Net profit for 23H1 and 23Q2 increased by 5.5% and 45.6% year-on-year, respectively, in line with overall expectations. According to the 2023 semi-annual report of Baotai Co., Ltd., the company's 23H1 revenue and net profit were 37.1 billion yuan and 380 million yuan respectively, with year-on-year changes of 9.8% and 5.5%, respectively. 23Q2 revenue and net profit were 1.83 billion yuan and 240 million yuan respectively, with year-on-year changes of 2.2% and 45.6% respectively.
The gross margins of 23H1 and 23Q2 companies were 22.6% and 26.8% respectively, and the gross margin of 23Q2 companies increased by 8 PCT over the previous month. The decline in costs is one of the main reasons for the increase in profitability in 23Q2. According to Wind, the average price of titanium sponge in 23Q2 fell 15% year on year.
Optimizing the product structure and promoting technological breakthroughs and production capacity construction, 23H2 is expected to increase in volume and profit. According to the company's annual report for 2022 and semi-annual report for 2023, in terms of market, it continued to explore key markets at home and abroad in 23, continuously optimize the product structure, and strive to expand the market share of high-value-added products. In terms of technology, in the first half of 2023, the company successfully developed ultra-long single-weight high-performance titanium alloy sheets, achieving a breakthrough in single weight and length in China. In terms of production capacity, projects such as the construction of space-grade wide-width titanium are progressing in an orderly manner. 23H1's titanium product production increased by 4.0% to 17,000 tons, with a planned output of 35,000 tons in '23. According to Wind, as of August 24, 2023, the average price of 23M1-8 titanium sponge fell 15% year on year. It is expected that with the company's production capacity investment, variety upgrades and scale effects, and cost reduction, 23H2 is expected to increase in volume and profit.
Profit prediction and investment advice: Give the company a “buy” rating. It is estimated that the company's EPS for 23-25 will be 1.85/2.26/2.60 yuan/share, respectively, the PE corresponding to the closing price on August 25, 23 will be 17/14/12 times, and the average PE valuation value of the company since '20 will be 37 times. The company is a leader in the titanium alloy industry. Considering continuing to expand production in the future and continue to innovate to improve the quality of development, refer to comparable company valuations, give the company 29 times PE valuation in 23 years. The corresponding reasonable value of the company is 53.59 yuan/share, giving the company a “buy” rating.
Risk warning. Risk of large fluctuations in raw materials. Downstream demand fell short of expectations. The progress of production capacity construction fell short of expectations. Product certification fell short of expectations.