Northeast Securities: Dragon Python Baili Titanium dioxide booms to boost performance against the trend

According to the 2020 annual report, the company achieved an operating income of 14.108 billion yuan, an increase of 24.21% over the same period last year, a net profit of 2.289 billion yuan, a decrease of 11.77%, and an investment loss of 377 million yuan for the combined oriental zirconium industry, deducting 2.508 billion yuan for non-return net profit, an increase of 0.65% over the same period last year. The net cash flow of operating activities was 3.121 billion yuan, an increase of 55.75% over the same period last year. Sales gross profit margin decreased by 7.02% compared with the same period last year, while sales expenses decreased by 31.03% year-on-year, mainly due to the transfer of current transportation costs to main business costs; the weighted average of ROE was 16.18%, down 3.33% from the same period last year. The net profit in the first quarter of 2021 was about 1.061 billion yuan, an increase of 17.77 percent over the same period last year.

Titanium dioxide market in 2020 "N"-shaped trend, volume and price rise to boost performance against the trend. The titanium dioxide market in the first quarter of 2020 coincided with the period of stock preparation and replenishment before and after the Spring Festival, and the market performance was strong, and the demand decreased in the second quarter due to the spread of the epidemic at home and abroad. With the epidemic under control in the third and fourth quarters, the global economy has stabilized, the demand for titanium dioxide has stabilized and gradually recovered. At the same time, due to the rising prices of raw materials such as titanium ore, titanium dioxide has risen in volume and price. Longyong Mining and Metallurgical subsidiary has a net profit of 1.527 billion yuan, which can be seen from the rise in titanium ore prices. The quarterly average price of rutile titanium dioxide in 2020 is 14981, 13681, and 12610, respectively, 14777 yuan / ton. In 2020, the company's production and sales of titanium dioxide were 81.72 million tons respectively, an increase of 29.73% / 33.12% over the same period last year. According to the process, the production and marketing of titanium dioxide by sulfuric acid process was 60.46 / 638800 tons, an increase of 8.90% / 14.52% over the same period last year, while the production and marketing of titanium dioxide by chlorination process was 225,936 million tons, an increase of 184.47% and 186.81% respectively over the same period last year. From a regional point of view, domestic sales account for 48%; international sales account for 52%, and the export market promotes the company's performance against the trend.

Raw materials are guaranteed to reduce costs, and the product structure is constantly enriched. The innovative project of upgrading 500000 tons of Panxi titanium concentrate into titanium chloride slag is scheduled to be put into production by the end of April, while looking for and purchasing high-quality titanium ores at home and abroad to increase the sustainability of titanium ore self-sufficiency, and the cost of titanium dioxide is expected to be further reduced. Yunnan Xinli annual production line project of 200000 tons of chlorinated titanium dioxide production line helps upgrade the products to the middle and high end. The construction of Yunnan national titanium production line with an annual output of 30,000 tons of rotor-grade sponge titanium is accelerated by the company's mature large-scale boiling chlorination technology and the advantages of industrial chain, and set up a titanium alloy project team to enter the field of titanium alloy; combined with the company's titanium dioxide industry chain, acquire graphite electrode assets and promote the industrialization of battery materials.

Add a profit forecast for 2023 and maintain a "buy" rating. It is estimated that the company's net profit and profit for 2021-2023 will be RMB 37.84 million, 45.94 billion, respectively, corresponding to PE 17X, 14X, 12X, and 20 times PE, for 21 years to maintain a "buy" rating.