The surge in the price of titanium sponge drags down the performance of 2021Q4 [institutional review]

Summary of events: on January 21, the company issued a pre-increase announcement on its performance in 2021: it is expected to achieve a net profit of 550 million yuan to 580 million yuan in 2021, from + 51.66% to + 59.93% compared with the same period last year, and from 490 million yuan to 520 million yuan after deducting non-return. Year-on-year + 53.73% to + 63.13%. Based on this, it is estimated that 2021Q4 achieved a net profit of 79 million yuan to 109 million yuan, Q3-59.24% to-43.71%, non-return net profit of 52 million yuan to 82 million yuan, and Q3-71.54% to-55.20%.

Analysis and judgment: the price of titanium sponge has risen sharply, which is a drag on the performance of 2021Q4. In terms of price, the 2021Q4 titanium industry maintains a high demeanor, and the price center of gravity of the industrial chain continues to move upward, but the price increase of raw materials is much higher than that of titanium. The average price of 2021Q4 sponge titanium market is 13.27% higher than that of Q3 titanium plate, while the average price of 2021Q4 titanium plate is only 2.34% higher than that of Q3. Sponge titanium accounts for more than 80% of titanium production costs. 2021Q4's gross profit margin is expected to decline due to the increase in sponge titanium prices. In terms of sales volume, the company gradually increased the volume of titanium products. In the first three quarters of 2021, the company achieved sales of 19600 tons of titanium products, a year-on-year increase of 39.29%. We believe that the sharp decline in 2021Q4's performance compared with the previous month is mainly due to the fact that the price increase of raw material sponge titanium is higher than that of titanium material.

The company is the domestic titanium material leader. The company is a high-tech enterprise for the research and development, production and sales of titanium and titanium alloy products, and is the only enterprise in China with a complete industry chain of casting-forging-titanium processing. The annual output of titanium materials ranks first in the country, and it is one of the main suppliers of aerospace titanium materials at home and abroad. By the end of 2020, the company has a design capacity of 10,000 tons / year for titanium sponge, 25,000 tons / year for titanium ingots and 20,000 tons / year for titanium materials. With the future aerospace wide titanium alloy plate, foil project, high-quality titanium ingot, pipe, profile project put into production, the company's leading position will be more stable.

The high-end titanium project has been gradually put into production, and the structure of titanium products has been continuously optimized. The company successfully completed the non-public offering of shares at the beginning of 2021, raising a net capital of 1.968 billion yuan, effectively ensuring the smooth implementation of the titanium project. (1) the aerospace wide-width titanium alloy plate and foil project is expected to increase production by 1500 tons / year, titanium belt by 5000 tons / year, foil by 500t / year; (2) high-quality titanium ingot, pipe and profile project is expected to increase production by 10000 tons / year; titanium project is expected to gradually put into production in 2022, when the company's titanium product structure will be further optimized.

Expand the production of sponge titanium and zirconium tetra-LV to narrow the raw material gap of the company. The expansion project with an annual production capacity of 12000 tons of sponge titanium and 3000 tons of zirconium tetra-LV has been gradually advanced, with a progress of 59.6% by the first half of 2021. The expansion project will help the company to narrow the gap in raw material supply and further enhance the stability of the company's performance.

Investment advice: benefiting from the development of aerospace, marine engineering and other downstream fields, the company has a broad demand for titanium materials, and with the commissioning of high-end titanium products projects, the company's profitability is expected to continue to rise. We estimate that the company's net profit from 2021 to 2023 will be 568 million yuan, corresponding to the closing price of 54.41 yuan on January 21, 2022, and the PE in 2021-2023 will be times that of 46-37-29, with a "recommendation" rating given to the company for the first time.

Risk tips: downstream demand is lower than expected; raw material prices are higher than expected; project progress is not as expected.