Pacific Securities: China Nuclear Titanium dioxide performance High growth benefits Titanium dioxide Business cycle

The company released the 2020 annual report, with operating income of 3.716 billion yuan during the reporting period, + 10.03% compared with the same period last year, and net profit of 475 million yuan, + 10.27% compared with the same period last year. At the same time, the quarterly report for 2021 was released, with operating income of 1.236 billion yuan, + 49.53% year-on-year, + 23.6% month-on-month, and net profit of 287 million yuan, + 77.29% and + 141.2%, respectively.

1. Benefit from the titanium dioxide business cycle, 21-year Q1 performance reached a new high. The company's main business is the R & D, production and sales of rutile titanium dioxide products. At present, it has formed three major production bases, among which Anhui Venus is the production headquarters, with a crude product production capacity of 150000 tons / year and a finished product capacity of 400,000 tons / year. Hecheng Titanium Industry has a crude production capacity of 80,000 tons per year, and Oriental Titanium Industry has a crude production capacity of 100,000 tons per year in Baiyin Base, with an annual production capacity of 330000 tons of crude products and 400000 tons of finished products. Production and sales rank second in the country.

Since 2020, the titanium dioxide industry as a whole shows a V-shaped shock upward trend. With the outbreak of the domestic epidemic in the first quarter of 2020, overseas customers worried that the follow-up supply would be blocked, resulting in a substantial increase in performance. With the outbreak of the epidemic abroad in the second quarter, the volume of exports fell, prices fell, and performance fell. With the gradual recovery of the economy and demand in the third quarter, titanium dioxide has entered a new cycle of price increases, driving the performance to be repaired step by step. In terms of production and sales, the company achieved an output of 317600 tons of titanium dioxide products in 2020, an increase of 24.23 percent over the same period last year, and the sales of finished titanium dioxide products were 319900 tons, an increase of 26.96 percent over the same period last year. Q1 in 2021, the market price of titanium dioxide continued to rise, and the average price of rutile was 17311 yuan / ton, + 15.55% compared with the same period last year, and + 17.15% compared with the previous year. The company issued price adjustment announcements on January 11, February 9, March 3 and April 6 respectively, which also reflects the continuous improvement of the prosperity of the industry. The company's performance continued to rise sharply on the basis of a high 20Q1 base, with quarterly revenue and net profit reaching record highs, with gross profit margin from + 0.72pct to 34.28% and net profit margin from + 3.64pct to 23.24%, breaking through 20% for the first time in history. In 2021, the company plans to produce 335000 tons of titanium dioxide, + 5.5% compared with the same period last year, striving to achieve a balance between production and sales, and plans to achieve a sales income of more than 5.5 billion yuan.

2. Accelerate the expansion of production capacity, at the same time actively distribute the upstream titanium resources and improve the industrial chain, the signing ceremony of silver landing for the company's Asian titanium production base was held on August 19, 2020. The company plans to build a comprehensive utilization project of 500000 tons of cleaner production process resources in Yindong Industrial Park of Baiyin High-tech Zone by stages, with an estimated total investment of 6 billion yuan. Among them, the first stage 100000 tons of titanium dioxide crude product project has been produced at full capacity, forming assets of about 2 billion yuan; the second stage 200000 tons of titanium dioxide crude product project has started construction, supporting 300000 tons of titanium dioxide finished product project has also met the conditions to start construction. After the completion of the project, the company will further consolidate its domestic TOP2 dominant position in the titanium dioxide industry. At the same time, the company signed the Strategic Cooperation Framework Agreement with the people's Government of Panzhihua City, and plans to rely on the rich vanadium-titanium magnetite resources in Panzhihua to invest in building vanadium-titanium industrial clusters in Panzhihua and extend the industrial chain upstream.

3. The high boom cycle of titanium dioxide industry is expected to continue from the third quarter of 2020. With the gradual recovery of domestic and foreign demand and the high pressure of titanium ore, the titanium dioxide industry has started a new cycle of price increase. We expect that the price of titanium dioxide is easy to rise and fall in the later stage, and the industry is expected to continue. On the demand side, from January to March 2021, the domestic commercial housing sales area was + 63.8% compared with the same period last year, the new housing construction area was + 28.2% year-on-year, and the housing completed area was + 22.9% compared with the same period last year. At the same time, the US real estate cycle is upward, exports are improving, and internal and external resonance. We expect the global titanium dioxide demand to increase significantly in 2021 compared with the same period last year. On the supply side, the new production capacity of the domestic titanium dioxide industry in 2021 is only about 200,000 tons / year, while overseas giants have lacked the ability and willingness to expand under the pressure of profits in the past two years, and have entered a strategic contraction phase. superimposing the impact of the global epidemic, it is estimated that some overseas devices will face the risk of withdrawal in 2020 and 2021. In 2020, China's export of titanium dioxide increased by about 20% compared with the same period last year. The overall supply and demand of the global titanium dioxide industry is in tight balance, and the high economic cycle is expected to continue.

On the demand side, from January to March 2021, the domestic commercial housing sales area was + 63.8% compared with the same period last year, the new housing construction area was + 28.2% year-on-year, and the housing completed area was + 22.9% compared with the same period last year. At the same time, the US real estate cycle is upward, exports are improving, and internal and external resonance. We expect the global titanium dioxide demand to increase significantly in 2021. On the supply side, the new production capacity of the domestic titanium dioxide industry in 2021 is only about 200,000 tons / year, while overseas giants have lacked the ability and willingness to expand under the pressure of profits in the past two years, and have entered a strategic contraction phase. superimposing the impact of the global epidemic, it is estimated that some overseas devices will face the risk of withdrawal in 2020 and 2021. In 2020, China's export of titanium dioxide increased by about 20% compared with the same period last year. The overall supply and demand of the global titanium dioxide industry is in tight balance, and the high economic cycle is expected to continue.

4. "Vertical promotion, horizontal circulation", layout of lithium iron phosphate materials during the 14th five-year Plan period, the company proposed to focus on the three major business sectors of "resources, titanium chemical industry and new materials" through endogenous growth and epitaxial mergers and acquisitions. The strategic planning of comprehensively laying out the upper and lower reaches of the industrial chain, creating a green circular industrial economy, and building the world's most competitive "titanium dioxide production base, lithium iron phosphate production base". Among them, in addition to continuing to strengthen the original main industry of titanium dioxide, it will also extend the industrial chain around the concept of "vertical promotion and horizontal circulation". It includes the project of crude titanium dioxide with an annual output of 200000 tons, the project of finished titanium dioxide with an annual output of 300000 tons, the project with an annual output of 500000 tons of water-soluble monoammonium phosphate, and the project with an annual output of 500000 tons of lithium ferric phosphate. The project with an annual output of 500000 tons of water-soluble monoammonium phosphate is the part of "waste acid cycle", which can absorb the waste sulfuric acid and acidic wastewater in the production process of titanium dioxide, as well as the liquid ammonia in the industrial park. The "lithium iron phosphate project with an annual output of 500000 tons" is the part of "ferrous cycle", that is, the water-soluble monoammonium phosphate of the aforementioned "waste acid cycle" reacts with ferrous sulfate in the production process of titanium dioxide to produce ferric phosphate, and then lithium iron phosphate is obtained by mixed coarse grinding, fine grinding, spray drying, sintering, crushing and other processes. According to GGII statistics, China shipped 124000 tons of lithium iron phosphate cathode materials in 2020, an increase of 41% over the same period last year. Benefit from the rapid development of the new energy automobile industry, while the cost advantage of lithium iron phosphate material, there is a lot of room for growth in the future. Since 2021, the price of lithium iron phosphate has increased by 35% to 50,000 yuan per ton compared with the same period last year.

5. Profit forecast and rating we expect the company's 2021-2023 net profit to be 1.067 billion yuan, 1.214 billion yuan and 1.486 billion yuan respectively, corresponding to EPS 0.52,0.59,0.72 yuan, PE 21X, 18x, 15x. Considering that the company is a TOP2 enterprise in China's titanium dioxide industry, centering on "vertical promotion and horizontal circulation", we will continue to expand production and consolidate the position of titanium dioxide industry, actively distribute lithium iron phosphate materials, and have large room for growth in the future and maintain the "buy" rating.