Event: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 5.509 billion yuan, a year-on-year net profit of -1.83%, a net profit of 0.517 billion yuan, or -5.97% year-on-year, after deducting non-return net profit of 0.433 billion yuan, or -14.27% year-on-year. Looking at a single quarter, the company achieved operating income of 1.778 billion yuan, -6.57%, and -6.51% year over year; realized net profit of 0.114 billion yuan, -53.38% month on month, -32.64% year on year; realized net profit without return to mother 0.088 billion yuan, -62.73% month on month and -41.40% year on year. 2024Q3

Volume & price: Military orders and 3C orders declined month-on-month, demand for aerospace grade exports grew steadily year-on-year, and demand for civilian goods remained weak. In the first three quarters of 2024, the company's sales volume of titanium products was about 26390.30 tons, up 8.96% year on year; 2024Q3, the company's sales volume of titanium products was about 8592.36 tons, a decrease of 4.37% month on month, and an increase of 14.06% year on year. The company's gross margin for the first three quarters of 2024 was 21.45%, down 1.03pct year on year; 2024Q3, the company's gross margin was 19.47%, down 7.47pct from month to month, down 2.76pct year on year, mainly due to the decline in high-profit sectors such as military products and 3C. The decrease in military goods mainly new orders in the early stages began to be reflected on the delivery side, and 3C followed the pace of consumer electronics and began to decline in September.

The decline in the price of titanium sponge is dragging down the company's profits. In the first three quarters of 2024, the average price of titanium sponge was about 0.0505 million yuan/ton, a year-on-year decrease of 25.32%. The company's subsidiary Baotai Huashen 24H1 achieved net profit of 0.117 billion yuan, a year-on-year decrease of 29.09%, mainly due to the year-on-year decline in the price of titanium sponge. The average price of 24Q3 titanium sponge was about 0.0482 million yuan/ton, down 7.82% from the previous month, further dragging down 24Q3's profits.

Demand market analysis: 1) The procurement pace in the military goods market has slowed significantly since the second half of 2023. Currently, demand in the military market is gradually stabilizing, and the inflection point is expected to gradually approach; 2) the domestic consumer goods market continues to weaken due to insufficient capital expenditure in the chemical industry; 3) Benefiting from the gradual recovery of overseas aviation demand, compounded by the Russian-Ukrainian conflict to catalyse Russian titanium share transfer, the company successfully enters overseas customer suppliers such as Boeing Airbus, and the export space grade market is expected to achieve continuous growth; 4) Apple is leading the smartphone market to adopt titanium alloy frame designs, and the 3C market application is expected to become the new demand for titanium materials Growth point, the company's demand for 3C titanium is expected to continue to grow. 5) In the domestic civil aviation sector, as the main supplier of titanium for C919, the company has signed orders one after another with C919, and demand for titanium has increased rapidly.

Core highlights: (1) High-end titanium projects are gradually put into operation, and the titanium product structure continues to be optimized. At the beginning of 2021, the company successfully completed a fixed increase in capital raising for high-end titanium projects. Among them, the space-grade wide-width titanium alloy sheet and foil project is expected to increase production by 1500 tons/year, titanium strip 5,000 tons/year, and foil by 500 tons/year; high-quality titanium ingots, pipes, and profile projects are expected to increase production of titanium ingots by 10,000 tons/year, 290 tons/year of pipes, and 100 tons/year of titanium alloy profiles. (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 0.05 million tons of titanium processed material production capacity in the 14th five years. (3) With the release of titanium sponge production, the company increased its raw material self-sufficiency rate to reduce the impact of price fluctuations on costs. (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. 5) In the domestic civil aviation sector, as the main supplier of titanium for C919, the company is expected to increase rapidly as C919 has signed orders one after another.

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 0.563, 0.66, and 0.737 billion yuan, and PE corresponding to the October 29 stock price will be 26/22/20X, 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.