Matters:
The company released its 2023 annual report & 2024 quarterly report. In 2023, it achieved revenue of 26.765 billion yuan, +11% year over year; net profit to mother was 3.26 billion yuan, -5.64% year over year, of which 2023Q4 achieved revenue of 6.503 billion yuan, +6.89% YoY/-7.3% YoY. Net profit attributable to mother was 1,084 million yuan, +340.6% YoY/+23.2% YoY.
2024Q1 achieved revenue of 7.294 billion yuan, +4.54% y/month-on-month +12%, and net profit to mother of 951 million yuan, +64.15% /month-on-month.
Commentary:
Driven by export demand, titanium dioxide revenue increased significantly year-on-year in '23. In terms of titanium dioxide, the company currently has 1.51 million tons of titanium dioxide production capacity. The revenue for titanium dioxide in '23 was 17.768 billion yuan, +9.83% year-on-year, with sales volume of 1.158,900 tons, +24.93% (of which the sulfuric acid method accounted for 69% and the chlorination method accounted for 31%), and the average price was 15,000 yuan/ton, -12.1% (raw material prices declined simultaneously, gross margin was -0.42PCT year on year). Overall, export demand drives sales throughout the year. From an industry perspective, exports of titanium dioxide reached 1.64 million tons in 23, and the CAGR reached 13% in the past 4 years, accounting for 41% of domestic production. The export market has gradually become the driving force for the growth of demand for titanium dioxide. By region, countries such as India, Vietnam, and Indonesia have strong demand for titanium dioxide, while European titanium dioxide companies are constrained by environmental protection and cost, and their overall competitiveness has declined, resulting in an increase in the amount of titanium dioxide imported. As the competitiveness of domestic enterprises increases further, the high growth rate of titanium dioxide exports is expected to be maintained. In terms of titanium sponge, the company currently has a production capacity of 50,000 tons, and is about to reach 80,000 tons of production capacity. In '23, the revenue of titanium sponge was 2,268 billion yuan, with sales volume reaching 47,000 tons, +28.15% year-on-year, with an average price of 48,000 yuan/ton, or -17.1% year-on-year. After additional production capacity is added to titanium sponge, the market share is expected to increase further. In terms of iron concentrate, the revenue of iron products in '23 was 2,573 billion yuan, +3.6% year on year. Sales volume of iron concentrate was 4.338 million tons, -0.65% year on year, average price was 593 yuan/ton, +4.3% year on year, and gross margin was +4.36 PCT year on year. New energy materials achieved revenue of 1,047 billion yuan, +59.71% year over year, including sales of 53,900 tons of iron phosphate, +163.61% year over year, and gross margin of -3.31%.
The significant year-on-year increase in 2024Q1 profits may be due to the continued high year-on-year increase in titanium dioxide exports. According to Wind data, the average price of 24Q1 titanium dioxide (rutile type) was 16,200 yuan/ton, +7.3% YoY -1.3%, and the average price of titanium concentrate was 2,269 yuan/ton, +4.7% YoY. Average prices in the industry have all increased year over year, but the logic of volume increase is even more significant. According to data from the export side, the export volume of the titanium dioxide industry from January to January 2024 was 490,000 tons, +12.1% year-on-year, continuing the high growth rate of the second half of last year. Furthermore, with the domestic real estate completion growth rate declining, the titanium dioxide industry's operating rate in March reached 87.66%, +9.9PCT/month-on-month +7.92PCT. The increase in external demand had a strong driving effect on the operating rate of domestic enterprises. It is expected that the logic of the export chain will continue to be interpreted throughout the year.
Investment advice: The company currently has the world's leading production capacity for titanium dioxide and titanium sponge. In addition, it has a continuous upward layout of titanium ore resources, which has a strong cost advantage compared to overseas companies, and is optimistic about the continuous performance brought about by the company's global pricing advantages and resource barriers. As demand for titanium dioxide exports continues to exceed expectations, we raised our previous profit forecast. We expect the company to achieve net profit of 43.29/51.09/6.103 billion yuan in 2024-2026 (the value before 2024-2025 was 40.28/4.536 billion yuan), +33.2%/+18.1%/+19.6%, corresponding P/E is 12/10/9x, respectively. Based on the average valuation of comparable companies, we gave the company 16.9x P/E in 2024, with a target price of 30.59 yuan/share Since the company has a strong leading pricing advantage in the mining side and titanium dioxide industry, we upgraded it to a “strong promotion” rating.
Risk warning: Demand from downstream building materials and other industries is declining, and the commissioning of new new energy materials falls short of expectations, etc.