The performance of 2023Q3 companies was under pressure month-on-month due to the decline in product prices against the backdrop of weak macroeconomic conditions. Despite a slowdown in performance growth, the company firmly adheres to the two-wheel drive strategy for vanadium products and titanium products, continues to increase the layout of the vanadium business in the new energy sector, guarantees the supply of raw materials for vanadium slag through processing models, and accelerates the commissioning of titanium dioxide fund-raising projects. As the real estate industry steadily recovers and superimposed capacity expansion and quality improvement projects continue to advance, the company's future performance increases are still worth looking forward to. Based on 25 times PE in 2024, the company was given a target price of 4.5 yuan/share for 2024, maintaining the company's “buy” rating.

2023Q3's performance was under pressure month-on-month. In 2023Q3, the company achieved revenue of 3,529 billion yuan, a year-on-year increase of 12.4%, a decrease of 4.1%; realized net profit of 266 million yuan, a sharp increase of 72.5% over the previous year, a decrease of 2.9% over the previous year; and achieved a gross profit margin of 13.59%, an increase of 0.3 pct over the previous year and a decrease of 1.1 pct over the previous year. The company's performance was under pressure month-on-month, mainly due to the decline in prices of vanadium products and titanium products in the context of weak macroeconomic conditions. In 2023Q1-3, the company achieved revenue of 11.156 billion yuan, a year-on-year decrease of 2.0%; realized net profit of 869 million yuan, a year-on-year decrease of 29.2%; and achieved a gross profit margin of 14.18%, a year-on-year decrease of 3.7 pct.

Accelerate the layout of the entire vanadium industry chain, and future performance increases can be expected. According to the company announcement, Vanadium Technology, a joint venture between the company and Dalian Rongke, completed the construction of a 2,000 m3/year vanadium electrolyte production line on May 25, 2023. By the end of August 2023, the production line had achieved production results, and the climbing progress was in line with expectations. On August 22, 2023, the company announced the acquisition of 51% of Yangrun Technology's shares. Yangrun Technology's main product is sheet V2O5, with a design capacity of 4,200 tons/year, 2022 full-year output of 3484.9 tons, sales volume reaching 2284.5 tons, and sales volume accounting for 1.86% of the market. After the company completes the acquisition, the design capacity of vanadium products will increase to 472,000 tons/year, and the actual output is expected to exceed 50,000 tons/year, contributing a significant increase to the company's performance.

Develop a new business model for vanadium slag processing and consolidate resource guarantee capabilities. According to the company announcement, on September 8, 2023, the company signed a “Vanadium Slag Contract” and a “Vanadium Product Purchase and Sale Agreement” with Shaanxi Steel Group. Hanzhong Steel entrusts all of the vanadium slag produced to the company for processing. The company sells vanadium nitrogen alloys to Hanzhong Steel according to market prices. It plans to process about 50,000 to 130,000 tons of vanadium slag per year, equivalent to about 0.4-10,000 tons of V2O5. The cooperation between the company and Han Steel Company of Shaanxi Steel Group is expected to become a successful example of the company's vanadium slag processing business. This model is conducive to guaranteeing the supply capacity of the company's important raw material vanadium slag, expanding the sales scale of the company's vanadium products, and enhancing the company's competitiveness and influence in the vanadium industry market.

The commercialization of vanadium batteries is gradually coming. According to Bloomberg New Energy's financial data, as of August 2023, the installed scale of liquid flow batteries in China reached 220 MW/865 MWh, of which all vanadium liquid flow batteries account for more than 90%. The commercialization process of vanadium batteries in the field of energy storage is ahead of other non-lithium battery material systems. The company announced on February 13, 2023 that it signed a “Strategic Cooperation Framework Agreement” with the Panzhihua Municipal Government and Dalian Rongke. The three parties will explore the vanadium electrolyte financial leasing model to promote the healthy development of the all-vanadium flow battery industry. The electrolyte leasing model is conducive to reducing pre-project investment pressure and optimizing project cash flow, and is expected to become a leading solution for the high cost of vanadium batteries.

Real estate is recovering slowly, and demand is under pressure, and the price of titanium products is running at a low level. The recovery of the real estate industry is under pressure. China's titanium dioxide industry maintains an overall pattern of oversupply, and the price of the company's titanium products fluctuates at a low level. According to the company announcement, 1H2023's titanium dioxide production reached 131,700 tons, achieving revenue of 1,761 billion yuan, a year-on-year decrease of 16.7%. The company continues to promote the 60,000 ton molten salt titanium chloride titanium dioxide fund-raising project. The commissioning of high-end titanium dioxide production capacity is expected to improve the gross profit margin of the company's titanium products business and help the company's performance grow.

Risk factors: Cost reduction of all-vanadium flow batteries falls short of expectations, causing progress in the energy storage field to fall short of expectations; rising vanadium prices inhibit the scale of vanadium batteries; the substitution effect of other new energy storage technology industrialization progress exceeding expectations on vanadium batteries; the volume of new large-scale energy storage projects in the world falls short of expectations; the decline in production in the steel industry has led to a sharp decline in demand for vanadium in traditional fields; and the decline in the prosperity of the titanium dioxide industry.

Profit forecasts, valuations and ratings: Affected by declining product prices in the context of weak macroeconomic conditions, the performance of 2023Q3 companies was under pressure month-on-month. Despite a slowdown in performance growth, the company firmly adheres to the two-wheel drive strategy for vanadium products and titanium products, continues to increase the layout of the vanadium business in the new energy sector, guarantees the supply of raw materials for vanadium slag through processing models, and accelerates the commissioning of titanium dioxide fund-raising projects. As the real estate industry steadily recovers and superimposed capacity expansion and quality improvement projects continue to advance, the company's future performance increases are still worth looking forward to. Considering that the inflection point of the recovery of the real estate industry is not clearly dragging down the profit of the titanium dioxide business and that the increase in the penetration rate of vanadium batteries during the downward phase of lithium prices is under some pressure, we lowered the company's net profit forecast for 2023-2025 to 11.55/ 17.16/2,098 billion yuan, corresponding to the EPS forecast of 0.12/0.18/0.23 yuan. Currently, comparable companies (Hanrui Cobalt, Longbai Group, Hegang Co., Ltd.) Wind unanimously expects the average PE in 2024 to be 18.2 times. Considering that the company's business opens up new growth space in the field of energy storage and that the accelerated expansion of high-quality production capacity in the field of titanium dioxide helps the market share to continue to increase, we gave the company a certain valuation premium, giving the company a valuation premium of 25xPE for 2024, corresponding to the target price of 4.5 yuan/share, maintaining the company's “buy” rating.