Introduction to this report:
Exports from the titanium dioxide industry increased year-on-year in May. The company's resource and cost advantages were obvious, and it maintained an increase in holdings rating.
Key points of investment:
Maintain an “Overweight” rating. Maintain 24-26 EPS at 1.70, 1.89, and 2.37 yuan. Referring to comparable companies, the PE valuation was given 13.90 times in 24 years, and the target price was reduced to 23.68 yuan (originally 27.56 yuan).
China's titanium dioxide exports increased year-on-year in May, with a slight decrease over the previous month. (1) According to customs data, in terms of export volume, exports of titanium dioxide in May 2024 were 149,300 tons, +3.11% YoY, -5.15% YoY, accounting for 36.92% of the country's output; cumulative exports in January-May were about 796,700 tons, +21.04% YoY, accounting for about 41.33% of the country's output. Export performance has been strong in 24 years. We believe there are two reasons. On the one hand, China's products have outstanding cost performance advantages and continue to penetrate global market share; on the other hand, due to the dark clouds of EU anti-dumping, overseas customers may accelerate procurement or domestic enterprises may accelerate exports in 24 years. (2) Judging from the average export price, the average export price of China's titanium dioxide in May 2024 was about 2299.82 US dollars/ton, +1.21% year on year, +0.03% month on month; the average export price in January-May was 2251.24 US dollars/ton, +2.99% year on year.
The operating rate of the industry is stable, and domestic demand is also strong. (1) Supply side: According to Baichuan Yingfu, the operating rate of China's titanium dioxide industry in May was about 84.13%, -0.74pct. The operating rate of the industry was relatively stable. In terms of production, production in May was 404,400 tons, +23.51% year over year, and -0.23% month over month.
New production capacity was released in the northern region during the month. In addition, there were several companies in East China, Shandong, and Panzhihua regions where production was cut, but the impact on overall supply was limited, and most of them have returned to normal. (2) Demand side: The boosting effect of external demand weakened in May. Domestic demand performance was average, and demand faced insufficient sustained momentum in the face of market support. In terms of external demand, according to Baichuan Yingfu, from January to May '24, China's total production of titanium dioxide was about 1.93 million tons, of which the export volume accounted for 41.33% of the total output. Therefore, both domestic and foreign demand had a great impact on the price and profit of titanium dioxide. In terms of domestic demand, the apparent consumption of titanium dioxide in May '24 was about 264,200 tons, +39.62% year-on-year and +3.72% month-on-month.
The downstream of titanium dioxide terminals is in the fields of industrial coatings, architectural coatings, etc. We believe that with the implementation of real estate and other policies in various regions, domestic demand may gradually improve over time.
There are many projects and continuous growth. The company's titanium dioxide production capacity is 1.51 million tons/year, the world's largest production capacity, supporting an annual production capacity of over one million tons of titanium concentrate. In terms of growth, the company's much-publicized Fengyuan technical reform project continues to advance. In addition, the company plans to invest in the construction of a vanadium-scandium new material industrial park. The first phase will mainly build the 2,500 tons/year high-purity vanadium pentoxide project, the 20,000 m3/year vanadium electrolyte project, and the 2000 tons/year aluminum ball project.
Risk warning: Projects under construction fell short of expectations, and anti-dumping by Brazil and India exceeded expectations.