The 2017 performance is in line with the forecast
Dongfang Tantalum Industry announced its 2017 results: operating income was 950 million yuan, an increase of 8.5% over the same period last year; net profit attributed to the parent company was-380 million yuan, down 14.1x from the same period last year, corresponding to earnings per share of-0.86 yuan, which was lower than we expected. The year-on-year decline in the company's performance in 2017 was mainly due to a decrease in non-operating income of 360 million yuan and an asset impairment loss of 210 million yuan. The net profit after deducting non-return is-400 million yuan, a decrease of 68.47 million yuan over the same period last year. 4Q17's single-quarter revenue was 240 million yuan, down 4.7% from a year earlier to 3.2% from a month earlier, and its net profit was-240 million yuan, down 2.3x from a year earlier and 190 million yuan from a month earlier.
Comments: 1) sales increased compared with the same period last year, and price increases increased gross profit margin. In 2017, the company's main product output was 10231 tons, an increase of 9.3 percent over the same period last year, and sales volume was 10590 tons, an increase of 12 percent over the same period last year. Tantalum prices rose 11% in 2017 compared with the same period last year, driving the company's 2017 comprehensive gross profit margin to 1.3% year-on-year, including tantalum-niobium and its alloy plate gross profit margin from + 6.9ppt to 13%, titanium and titanium alloy plate gross profit margin from + 42.2ppt to-11.2%, energy raw material plate gross profit margin from + 25.4ppt to 4.2%. 2) the year-on-year decline in non-operating income is one of the main reasons for the decline in the company's performance compared with the same period last year. The non-operating income in 2016 mainly comes from the compensation received by the company. 3) the impairment loss of assets increased by 230 million yuan compared with the same period last year, affecting EPS~0.52 yuan. Of the impairment loss of 210 million yuan in 2017, about 190 million yuan came from fixed assets.
Trend of development
Asset restructuring is still under planning. The company announced that it intends to place the equity of Northwest rare Metal Materials Research Institute Ningxia Co., Ltd. ("Western Materials Institute") held by China Color (Ningxia) Oriental Group (the company's controlling shareholder) in the form of asset swap. buy out their own titanium branch, photovoltaic materials branch and other business corresponding assets and liabilities, constitute a related party transaction. The reorganization is still in communication and is still uncertain.
It is forecast that there will be a loss in the first quarter. The company expects 1Q18 home net profit of-22 million yuan to-38 million yuan, mainly due to losses in new industries. The loss is less than 52.55 million yuan of 1Q17.
Profit forecast
The company's performance was lower than expected, and we updated the production and cost assumptions, lowered the company's 2018 earnings per share forecast of 0.22 yuan to-0.54 yuan, and introduced 2019 earnings per share of-0.31 yuan.
Valuation and suggestion
Considering that the company's performance is lower than expected and it will take time to upgrade the product structure, we reduce the company's target price by 20% to RMB 8.0, corresponding to an increase of 11%.
Risk
Downstream demand is lower than expected; cost control is not as expected.