Key points of investment
Incident: Longbai Group released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 26.765 billion yuan, a year-on-year increase of 11.00%; net profit to mother of 3.226 billion yuan, a year-on-year decrease of 5.64%; net profit after deducting non-return to mother of 3.116 billion yuan, a year-on-year decrease of 4.68%; and a gross profit margin of 26.71%, a year-on-year decrease of 3.48 pcts. 2024Q1 achieved revenue of 7.288 billion yuan, up 4.52% year on year, up 12.06% month on month; net profit to mother of 951 million yuan, up 64.15% year on year, down 12.29% month on month; net profit after deducting net profit of 925 million yuan, up 67.21% year on year, down 12.68% month on month; gross profit margin of 28.29%, up 5.24 pct year on year, with a slight increase of 0.75 pct month on month.
Production and sales reached record highs, and profits were relatively steady. The company seizes the favorable opportunity for the bottom of the titanium dioxide industry to recover, and at the same time actively explore the titanium sponge market, effectively improve the utilization rate of titanium dioxide and titanium sponge production capacity, and effectively release the production capacity of titanium dioxide and titanium sponge by chlorination. Production and sales of titanium dioxide and titanium sponge reached new highs, the market share was further increased, and the leading position was further consolidated. In 2023, the titanium dioxide market showed an M-shaped trend, fluctuating upward. In the first quarter, market confidence of titanium dioxide companies was good, and prices rose; in the second quarter, cost support weakened, and demand was average, and prices were lowered; in the third quarter, demand rose, market sentiment improved, and prices rose; in the fourth quarter, the domestic terminal market was weak, and market prices fell. Titanium dioxide achieved revenue of 17.768 billion yuan in 2023, up 9.83% year on year, gross profit margin of 28.51% year on year, down 0.42 pct year on year, production volume of 1.1914 million tons, up 20.36% year on year, sales volume of 1.1589 million tons, up 24.93% year on year; sponge titanium products achieved revenue of 2,268 billion yuan in 2023, up 6.27% year on year, gross profit margin 17.87%, down 10.58 pct year on year. Sponge titanium production was 51,800 tons, up 36.05% year on year. 47,000 tons, up 28.15% year on year; iron products had revenue of 2,573 billion yuan, up 3.60% year on year; gross profit margin increased 4.36 pct year on year; iron concentrate production was 4.248 million tons, up 16.63% year on year; iron concentrate sales were 4.3382 million tons, down 0.65% year on year; new energy materials achieved revenue of 1,047 billion yuan in 2023, up 59.71% year on year, gross profit margin -3.31%, down 15.66 pct year on year, of which iron phosphate production was 6.61 10,000 tons, up 157.80% year on year; sales of iron phosphate were 53,900 tons, up 163.61% year on year; zirconium products were 1.102 billion yuan, up 4.99% year on year, gross profit margin was 13.33%, down 10.18 pct year on year.
Exports of titanium dioxide are an important driving force. According to Longbai's annual report, the global production capacity of titanium dioxide in 2023 is 9.819 million tons. The increase in production capacity is mainly due to the increase in China's titanium dioxide production capacity. Currently, China's production capacity accounts for 55% of the world's production capacity; due to international market demand and the operation of the titanium dioxide market industry, Kemu and Pantenengtou have withdrawn some production capacity, and China's share of titanium dioxide production capacity continues to gradually expand. In 2023, China's titanium dioxide market showed an upward trend. The total output of the industry reached a new high of 4.16 million tons, up 6.3% year on year, and cumulative exports of 1.6418 million tons, up 16.80% year on year. Domestic titanium dioxide exports broke through the 1 million ton mark in 2019, titanium dioxide exports reached 1.64 million tons in 2023, and the titanium dioxide export CAGR reached 13.09% in 2019-2023. Looking at titanium dioxide export destinations, they are mainly concentrated in Asia and Europe. Asia accounts for 52%, Europe accounts for 21%, South America accounts for 12%, Africa accounts for 11%, and North America and Oceania accounts for 4%. Asia and Europe account for a large share mainly because Asia is an emerging region that consumes titanium dioxide. Among them, the rapid development of construction and other industries such as India, Vietnam, and Indonesia has strong demand for titanium dioxide, while Europe is constrained by environmental protection and cost, and the competitiveness of European titanium dioxide companies has declined, leading to an increase in the amount of titanium dioxide imported. In 2023, the company's sales volume of titanium dioxide increased 24.93% year-on-year, with international sales accounting for 56.47%. As the competitiveness of domestic titanium dioxide is further strengthened, it is expected that the high growth in titanium dioxide exports will be further maintained in the future.
Consolidate the leading position and strengthen resource security. Currently, the company's main product, titanium dioxide, has a production capacity of 1.51 million tons/year and titanium sponge production capacity of 50,000 tons/year, leading the scale in the world; lithium iron phosphate production capacity is 50,000 tons/year, iron phosphate production capacity is 100,000 tons/year, graphite anode production capacity is 25,000 tons/year, and graphitization capacity is 50,000 tons/year; zirconium products are operated by the holding subsidiary Dongfang Zirconium (stock code: 002167). In addition, the production capacity of titanium sponge is 30,000 tons/year, and the production capacity of iron phosphate is under construction is 100,000 tons/year. China's titanium ore market fluctuated in 2023. Domestic titanium ore and imported titanium ore supply and demand were in a tight balance, and titanium ore prices remained high and fluctuated in a narrow range. In 2023, Longbai produced 1.474,500 tons of titanium concentrate, an increase of 26.14% over the previous year. All of it was used internally, effectively guaranteeing the company's raw material supply. The company will promote the construction of new titanium ore projects such as the integration of the two mines in the Hongge mining area and the development of Xujiagou, and strive to achieve an annual production of 7.6 million tons of iron concentrate and 2.84 million tons of titanium concentrate by the end of the “14th Five-Year Plan”.
Continued good dividend returns to shareholders. In addition to continuing to do a good job in business operations, Longbai Group has continued to give back dividends to investors every year since its listing in 2011. According to the company announcement and wind data, equity distribution for the first quarter of 2023 was implemented in May 2023, and equity distribution for the third quarter of 2023 was implemented in November 2023, with cash distribution of 716 million yuan, with a total dividend of 2.15 billion yuan in 2023, accounting for 66.6% of net profit due to mother in 2023. Calculated at the closing price on April 29, 2024, the dividend rate was 4.31%. In March 2024, the profit distribution plan for the first quarter of 2024 was announced. It is proposed to distribute a discovery dividend of 1.43 billion yuan, accounting for 150.5% of net profit returned to mother for the first quarter of 2024. Since 2011, it has accumulated dividends of 17.5 billion yuan, with an average dividend rate of 75.6%.
Investment advice: Longbai Group is the leader in the domestic titanium industry chain. It continues to increase the guarantee of upstream titanium concentrate resources. The titanium dioxide business benefits from demand recovery and export growth, and the company continues to give back to investors with high dividends. Considering project progress and changes in product climate, we adjusted the profit forecast. The company's revenue for 2024-2026 is 319.71 (original 324.31) /341.36 (original 368.99) /37.487 billion yuan, up 19.3%/6.8%/9.8% year on year, and net profit to mother is 41.43 (original 40.96) /50.86 (original 51.33) /6.030 billion yuan, respectively, up 28.4%/22.8%/18.6% year on year, corresponding PE 12.1x/9.8x/8.3x; maintain the “Accumulation - B” rating.
Risk warning: New supply exceeds expectations; demand falls short of expectations; risk of trade friction; project progress falls short of expectations; safety and environmental risks.