Kuncai Technology's titanium dioxide is in the process of optimization

The company reported that the revenue of 2023H was about 440 million yuan, an increase of 8% over the same period last year, and the net profit attributable to it was about 37 million yuan, down 35% from the same period last year, and 34% from the same period last year. 2023Q2 revenue is about 200 million yuan, down 5% from the same period last year, net profit attributable to about 24 million yuan, down 21% from the same period last year, and deducting non-net profit from the same period last year decreased by 19%. Event comment Revenue growth in the first half of the year came from titanium dioxide. The company's income in the first half of the year is about 440 million yuan, of which pearlescent material revenue is about 360 million yuan, down 11% from the same period last year. In the same period last year, titanium dioxide did not contribute income. From a market point of view, China's income is about 2.90 yuan, up 26% from the same period last year; overseas income is about 150 million yuan, down 15% from the same period last year, which means that titanium dioxide revenue growth mainly comes from the Chinese market, and overseas markets need to be further explored. As the company's titanium dioxide is still in the process of process optimization, it has not achieved large-scale sales, although there are revenue contributions in the first half of the year, but the scale is small. The decline in profits in the first half came from titanium dioxide, which improved in the second quarter compared with the previous quarter. In the first half of the year, the net profits of Zhengtai New Materials and Fushi New Materials were-2068 and-7.08 million yuan respectively, with a total loss of 2776. Ten thousand yuan, which means that the net profit of the company's original main business, pearlescent materials, is about 65 million yuan. if the interest expenses arising from capital expenditure on new products are taken into account, the net profit of pearlescent materials in the first half of the year will be even higher. The company's gross profit margin in the first half of the year was about 32.4%, down 1.6 percentage points from the same period last year. We judged that the lower gross profit margin of the business was due to the low production and sales of titanium dioxide in the early stage, and that pearlescent materials benefited from the increase in the proportion of high-end products and the decline of raw materials in the first half of the year. Gross profit margin increased year-on-year. The rate for the first half of the year is about 20.7%, an increase of 3.0% over the same period last year. The sales, management and financial rates increased by 0.4%, 1.7% and 1.8% respectively compared with the same period last year. The final net interest rate for the first half of the year was about 8.5%, down 5.6 percentage points from the same period last year. From a month-on-month point of view, the gross profit margin in the second quarter was about 37.8%, an increase of 9.9% compared with the previous quarter; the premium rate for the period was about 23.3%, an increase of 4.7% over the previous period; and the final attributable net profit rate was 12.1%, an increase of 6.6% over the previous quarter. Stable scale production needs a long time of optimization, and there is a long way to go. The company's main business has changed in the past few years, with products extending from pearlescent materials to titanium dioxide, which means moving from the segment of inorganic pigments to the mainstream market. The company's core competitiveness lies in the innovative use of hydrochloric acid extraction to produce titanium and iron oxides at low cost, which is suitable for both pearlescent materials and titanium dioxide. Reviewing its production process, we can see the company's persistence on the road of innovation: the world's first project for hydrochloric acid extraction of titanium dioxide was put into production in 2018 and produced in August 2019. The 200000-ton titanium oxychloride project began trial production, which is equivalent to the mass production of titanium dioxide on a small scale (10-20,000 tons); the titanium dioxide project with an annual production capacity of 100000 tons began trial production in December 2020 and officially ran through in the first half of 2022, followed by continuous equipment optimization and process adjustment. During the reporting period, the first phase of the project with an annual output of 200000 tons of titanium dioxide, a wholly-owned subsidiary of the company, has an orderly and stable operation, with continuous optimization of production process, continuous release of production capacity and steady improvement of product quality. 60% increase in the second phase The 10,000-ton titanium dioxide project is under steady construction and will greatly enhance the production capacity of the company's titanium dioxide and iron oxide products after it is put into production. It is estimated that the net profit attributable to the company from 2023 to 2024 is 1.1 yuan and 710 million yuan, with a corresponding valuation of 214,35 times. Risk hint 1. The downstream demand for related products has dropped sharply. 2. Long time for product performance and customer certification