Event: The company released its 2023 annual report. In 2023, the company achieved operating income of 6.927 billion yuan, a year-on-year increase of 4.41%, net profit to mother of 544 million yuan, a year-on-year decrease of 2.29%, and net profit of non-return to mother of 475 million yuan, a year-on-year decrease of 7.74%. Looking at the single quarter, the company achieved operating income of 1,316 billion yuan, a decrease of 30.82% from the previous year, a decrease of 14.31%; realized net profit attributable to mother of -0.05 billion yuan, a decrease of 103.06% from the previous year and a decrease of 110.80% from the previous year; and realized net profit deducted from non-mother of -31 million yuan, a decrease of 120.75% from the previous year and a decrease of 186.93% year on year. 2023Q4
Volume & price: Demand in the military and civilian markets is declining, volume and price are under pressure, and the export market is growing rapidly. In 2023, the company's production of titanium products was about 30013.33 tons, a year-on-year decrease of 7.76%, and sales volume was about 29379.58 tons, a year-on-year decrease of 7.05%. 2023Q4, the company's production of titanium products was about 5,903 tons, a decrease of 18.20%, a year-on-year decrease of 24.81%, and sales volume of about 5159 tons, a decrease of 31.52% month-on-month and 29.34% year-on-year. The decline in sales of titanium products is mainly due to a slowdown in demand for military products combined with insufficient capital expenditure in the civilian chemical industry. Downstream procurement has slowed significantly since the second half of '23. The company's gross margin in 2023 was 21.18%, down 0.46pct year on year; 2023Q4, the company's gross margin was 15.63%, down 6.60 pcts month on month, down 3.17 pct year on year; by product margin, in 2023, the company's gross margin of titanium products was 21.76%, down 0.04 pct year on year; gross margin of other products was 14.85%, down 3.29 pct year on year. By region, overseas revenue in 2023 was about 1,333 billion yuan, an increase of 77.74% over the previous year, mainly due to the recovery of the export aviation market combined with the increase in new demand in the 3C sector.
Impairment calculation: In 2023, the company accrued asset impairment losses of 86.8617 million yuan, mainly accruing losses due to inventory price drop losses and contract performance cost impairment losses; the company accrued credit impairment losses of 31.9039 million yuan, mainly due to an increase in the company's accounts receivable and an increase in confirmed credit impairment losses.
Core highlights: (1) High-end titanium projects are gradually put into operation, and the titanium product structure continues to be optimized. The company successfully completed the non-public offering of shares in early 2021, raising a net capital of 1,968 billion yuan to ensure the smooth implementation of the titanium fund-raising project. 1) The aerospace-grade wide-width titanium alloy sheet and foil project is expected to increase production by 1500 tons/year, titanium strip by 5,000 tons/year, and foil by 500 tons/year; 2) The high-quality titanium ingot, pipe and profile project is expected to increase the production of titanium ingots by 10,000 tons/year, 290 tons/year of pipe, and 100 tons/year of titanium alloy profiles; with the gradual commissioning of the titanium project, the company's titanium product structure has been optimized. (2) The company continues to increase production capacity. The actual production capacity of titanium processed materials reached 3,2942 tons in 2023, and there is still 400 tons of production capacity under construction. It is planned to reach 50,000 tons of titanium processing material production capacity in the 14th five years. (3) The company increases the self-sufficiency rate of raw materials to reduce the impact of price fluctuations on costs. With the release of titanium sponge production, the company's raw material self-sufficiency rate increased to ensure the stability of the company's performance. (4) The application of titanium alloy materials in the 3C field is expected to open up new growth space, and the company is expected to benefit deeply as a major supplier of upstream titanium materials.
Investment advice: The company leads the production scale of titanium and titanium alloys in China. It benefits from rapid development in aerospace, 3C consumer electronics and other fields, driving the broad demand space for titanium materials, and future growth can be expected. We expect that in 2024-2026, the company's net profit will be 583, 7.12, and 842 million yuan, and PE corresponding to the March 29 stock price will be 23/19/16X, respectively, maintaining the “recommended” rating.
Risk warning: downstream demand falls short of expectations; risk of raw material price fluctuations; project progress falls short of expectations.