Introduction to this report:

The company's performance for the first three quarters of 2023 was in line with expectations, and the weak price of titanium dioxide weighed on the company's performance. The company has increased the amount of vanadium resources through external mergers and acquisitions and cooperation, and vanadium products will become a strong support for performance.

Key points of investment:

Maintain the “Overweight” rating. In the first three quarters of 2023, the company achieved revenue of 11.156 billion yuan, a year-on-year decrease of 2.03%, and net profit of 869 million yuan, a year-on-year decrease of 29.19%. The company's performance was in line with expectations. Considering the low price fluctuations of titanium dioxide, the company's net profit forecast for 2023-25 was lowered to 11.38/1,507/1,734 billion yuan (previously 14.96/21.89/2.33 billion), corresponding to EPS of 0.12/0.16/0.19 yuan. Referring to similar companies, the company was given a valuation of 35 times PE in 2023, and the company's target price was lowered to 4.2 yuan (previously 4.8 yuan) to maintain the “increased holdings” rating.

Vanadium resources have continued to grow, and it is expected that they will continue to contribute to increased performance. In August, the company announced the acquisition of 51% of Yangrun Technology's shares. Yangrun Technology's vanadium product design capacity is 4,200 tons/year, and the output is 3,485 tons in 2022.

After the company's acquisition was completed, its own production capacity increased to 44,200 tons. The company announced in September that it will cooperate with Hanzhong Steel of Shaanxi Steel Group. Hanzhong Steel will hand over all of the vanadium slag it produces to the company for processing. The amount of vanadium slag is about 50,000 tons per year, which is reduced to 0.4-10,000 tons of vanadium pentoxide. The amount of vanadium resources of the company continues to rise, and it is expected that the production of the company's vanadium products will continue to rise, which will continue to contribute to the increase in performance.

The commercialization of vanadium batteries is gradually coming. 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. In the context of the rising share of new energy, vanadium batteries are expected to be gradually commercialized, and demand for vanadium will gradually rise along with the commercialization of vanadium batteries.

Demand for titanium dioxide is weak, and prices fluctuate at a low level. Against the backdrop of weak real estate demand, demand for titanium dioxide in China is weak, and prices fluctuate at low levels. In the first half of the year, the company produced 131,700 tons of titanium dioxide, achieving revenue of 1,761 billion yuan, a year-on-year decrease of 16.65%. The company will increase its investment and continue to invest in the 60,000 tons of molten salt titanium dioxide project. It is expected that the production of titanium dioxide will rise further in the future.

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