1Q performance to reverse losses in 2019

Oriental Tantalum Industry announced its 1Q results in 2019: operating income was 170 million yuan, down 28% from the same period last year, down 37% from the previous year, and the net profit belonging to the parent company was 3.01 million yuan, an increase of about 32 million yuan from the same period last year and a turnround, a decrease of 89% from the previous year, corresponding to a profit per share of 0.0068 yuan, in line with the performance forecast. The net profit was-3.62 million yuan, and the loss was reduced by about 27 million yuan over the same period last year. The year-on-year improvement in 1Q19 earnings is mainly due to a decline in expenses during the period, as well as an increase in investment income and government subsidies.

Comments: 1) 1Q19's comprehensive gross profit margin increased 5ppt compared with the same period last year, while 8.6ppt decreased to 11.7% month-on-month. 2) the 1Q19 management fee is 15% or 3.23 million yuan lower than the same period last year, 39% or 11.6 million yuan lower than the previous year, and the management expense rate is 10.5%, year-on-year + 1.6ppt, and 0.3ppt is reduced compared with the previous year. 3) the financial expenses of 1Q19 decreased by 53% or 8.48 million yuan compared with the same period last year, mainly due to the decrease of interest expenses and exchange losses compared with the same period last year, but increased by 14.54 million yuan compared with the same period last year. The financial expense rate of 1Q19 was 4.3%, which decreased 2.3ppt compared with the same period last year, but increased 6.9ppt. 4) 1Q19 investment income + fair value change income increased by 5.48 million yuan and 2.11 million yuan respectively compared with the same period last year, in addition, other income of 1Q19 company increased by 3.7x to 6.06 million yuan compared with the same period last year, mainly due to the increase of government subsidies. 5) the cash flow of business activities increased significantly by 5.9x to 79.4 million yuan compared with the same period last year.

Trend of development

It will have a positive impact after the completion of the replacement project. At the end of 2018, the company acquired its titanium branch photovoltaic materials branch, abrasive materials branch, energy materials branch and related public auxiliary facilities located in Dawukou District Industrial Park to replace 28% of the equity held by China Color Oriental. According to the company announcement, the asset quality of the company has been improved after the transaction, which will focus on the main business of niobium and tantalum. From the 1Q19 point of view, the previously placed assets increased the company's investment income, while the purchase of assets reduced the company's losses.

Profit forecast

We keep the profit forecast of 2019amp 20e 0.05pound 0.06 yuan unchanged.

Valuation and suggestion

The company's current share price corresponds to the 1920-year 3.5-pound 3.4 times the price of the company. Maintain the neutral rating and target price of 8.0 yuan, which corresponds to 3.0 times of 19Universe 19Candrel, which is 12% lower than the current stock price.

Risk

Downstream demand is lower than expected; product sales and prices are lower than expected.