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Titanium is a rare metal with unique properties. It has a series of excellent characteristics such as light weight, high strength, corrosion resistance, and good biocompatibility. It is widely used in military fields such as aviation, aerospace, ships, and civil fields such as petroleum, chemical, and metallurgical industries.

China is the world's major titanium production and marketing country, has been for many years to maintain net exports. However, high-end titanium materials used in aerospace and other fields are still in short supply and even need to be imported.

At present, the domestic military high-end titanium market participants are mainly Bao Titanium shares (600456), Western Superconductivity (688122). So, in the context of high-end titanium in short supply, high-end titanium duopoly, who is better?

1. low-end overcapacity, income does not increase profits

Western Superconductivity is mainly engaged in the research and development, production and sales of high-end titanium alloy materials, high-performance superalloy materials and superconducting materials and their applications. This paper mainly analyzes the high-end titanium alloy materials business, the first half of 2023 to achieve revenue 1.338 billion, revenue accounted for 63.36.

from the downstream point of view, the western superconducting production of high-end titanium alloy materials, mainly for the military field . From the 2021 sales structure, the aerospace sector sales of titanium 5261 tons, accounting for up to 79%.

Source: West China Securities

In contrast, Baoti shares cover a wider range.

Baoti Co., Ltd. was established in 1999. Baoji City, Shaanxi Province, is China's largest titanium and titanium alloy production and research base, known as "China Titanium Valley". BaoTi shares of titanium produced titanium, both military , but also civilian . Also compared to the sales structure in 2021, its aerospace sector sold 7889 tons of titanium, accounting for only 27%.

And this product structure leads to a huge difference in the performance of Baoti and Western Superconductors.

First of all, from the scale point of view, Baoti shares, whether military, or the overall scale, are far more than the western superconducting. Moreover, from 2021 to 2022, sales of titanium products increased by 4972.81 tons, with 1.295 billion revenue growth, while sales of superconducting titanium alloys in the West increased by 1790.79 tons, with 0.751 billion revenue growth.

Obviously, the expansion momentum of Baoti shares is also far ahead of Western Superconductivity.

Data source: Flush iFinD, of which 2021 sales data is slightly different from the above table brokerage statistics

only, Baoti shares only increase but do not increase profits .

In the first half of 2023, the overall revenue of Baoti shares increased by 9.81 per cent year-on-year, while net profit after deduction increased by only 4.83 per cent year-on-year. The gap is even more pronounced in 2022, with revenue up 18.39 per cent year-on-year, while net non-profit is down 31.22 per cent year-on-year.

In the final analysis, it is because of the substantial increase in sales of Baoti shares, which has largely benefited from the expansion of the civilian market . But titanium in the civilian sector, but not much profit margins.

As stated at the beginning of the article, China's high-end titanium production capacity is insufficient, but low-end production capacity has shown excess situation. In Baoji, there are more than 400 titanium alloy processing manufacturers. In such fierce competition, the gross profit margin of civil titanium products is only about 10%.

Source: West China Securities

In 2022, the gross profit margin of high-end titanium alloys in Western Superconductivity will be as high as 43.29 . In contrast, the profits of Baoti's civilian products are pitifully small.

2. dependence on the military market, risk and pressure sharing

Overall, although Baoti's military and civilian dual markets are larger, they also rely mainly on the military market to make money. And whether it is Baoti shares, or the western superconducting, relying on the military market, are bound to bear a certain price.

1 ► High customer concentration

In recent years, Baoti has not announced the sales of the top five customers. Referring to the data of the first half of 2014, the top five customers accounted for as much as 49.53. And Western Superconductor, because the revenue mainly comes from the military market, customer concentration is obviously more. In 2022, the top five customers will account for 65.44 percent of revenue.

Source: Flush, Western Superconductor (left, 2022 data), Baoti (right, first half of 2014 data)

2 ► High risk of performance volatility

from the past data, in 2016 and 2017, the western superconducting titanium alloy revenue growth of only 1.02, 4.79. In recent years, the country's demand for military aircraft has been strong, and Western Superconductor has basically maintained an income growth rate of more than 30%. However, in the first half of 2023, titanium alloy revenue turned down, year-on-year decline up to 19.38 percent (due to the performance of Baotitanium shares difficult to distinguish between military and civilian, so mainly to the western superconducting data as an example, the same below).

Source: Flush iFinD-Western Superconductor Revenue YoY Growth Rate

End-market demand is not something companies can control. In the future, the country's specific demand for military aircraft and production planning are uncertain. If the production of national military aircraft in the future fluctuates periodically or even drops sharply, it will have a significant impact on corporate performance.

3 ► Quartermaster business, cash flow is always the number one pressure

according to the western superconducting financial report, the market demand for its high-end titanium alloy materials mainly comes from the military aviation field. the research and development and verification cycle of military aviation materials is long, the collection cycle is long, the product production cycle is long, and most of the settlement methods adopt acceptance bills, resulting in greater short-term capital pressure of enterprises.

Source: Western Superconductor 2023 Semi-Annual Report

from the data, in the first half of 2023, the turnover days of accounts receivable of western superconducting and Baoti shares were as high as 151.78 days and 112.8 days respectively. in addition, the turnover days of inventory were as high as 328.77 days and 224.24 days respectively.

This is equivalent to Western Superconductor and Baoti shares from inventory acquisition, to sales recognition of revenue, to receipt of repayment, or up to 1-2 years.

And the capital account is getting worse. In the first half of 2023, Western Superconductor's total revenue increased by only 1.34 percent year-on-year, but due to the characteristics of customer repayments, the end of the period arrears increased, resulting in accounts receivable year-on-year growth of 72.31%.

3. increase current loans to maintain operating capital

In summary, titanium metal has excellent performance and can be widely used in military and civilian markets. However, low-end products have overcapacity and low gross profit. Baoti's civilian products, despite their scale and growth, cannot escape the situation of increasing income but not profits.

in the field of military products, western superconducting and Baoti shares can be called high-end titanium alloy double oligarch, but the end market is not controllable, the risk of performance fluctuations is greater, the first half of the western superconducting income fell sharply. Moreover, the long inventory sales cycle and the slow return of accounts receivable have led to tremendous financial pressure on companies.

In the first half of 2023, Western Superconductor increased its current loans to meet operating capital needs, resulting in a 44.1 percent year-on-year increase in long-term borrowings .

Source: Flush-Western Superconductor 2023 Semi-Annual Data

Even the operating capital needs to be maintained by borrowing. It can be seen that it is not easy to become a military supplier. In the face of the dual pressure of performance fluctuations and cash flow, both the company and the investors behind it may have to have a strong heart that can withstand the pressure.

Note: This article does not constitute any investment advice. The stock market is risky and you need to be cautious when entering the market. No sale, no harm.