In the first quarter of 2022, the company's net profit after deducting non-return has nearly doubled compared with the same period last year, with the continuous growth of downstream demand such as new energy vehicles, wind power generation, industrial motors and so on. We expect the company to fully benefit from the business cycle of the rare earth permanent magnet industry in 2022, the profit level is expected to increase quarter by quarter, maintain the company's target price of 20 yuan, maintain the "buy" rating.

The company's net profit after deducting non-return in the first quarter of 2022 nearly doubled compared with the same period last year. In the first quarter of 2022, the company achieved revenue of 1.201 billion yuan, an increase of 77.27% over the same period last year, a net profit of 74 million yuan, an increase of 14.11% over the same period last year, and a net profit of 91 million yuan, an increase of 94.1% over the same period last year and about 3% month-on-month growth. The substantial increase in revenue and profit is mainly due to the increase in sales of the company's high-performance NdFeB products and the smooth transmission of raw material prices. The non-recurrent profit and loss mainly comes from the fair value change loss caused by the fall of the stock price of the company holding ocean electric enterprise, which is about 46 million yuan.

The strong demand in the field of new energy vehicles has contributed to the continuous improvement of profitability. In the first quarter of 2022, the penetration of new energy vehicles continued to increase, and the downstream customers of the company now covered most of the mainstream models in the market, and their market share further increased. The sales revenue of high-performance NdFeB materials in the field of new energy vehicles reached 238 million yuan, an increase of 239% over the same period last year. Through technological progress and management optimization, the company has maintained the advantages of the traditional market. The sales revenue of high-performance NdFeB materials in the field of consumer electronics has reached 410 million yuan, an increase of 45% over the same period last year. The company continues to expand the application fields of industrial motors, wind power, frequency conversion air conditioners, etc., and the sales revenue of high-performance NdFeB materials in industrial and other application fields reached 411 million yuan, an increase of 77% over the same period last year. The second half of the year is the traditional peak season for downstream applications such as new energy vehicles and consumer electronics, and the company's profitability is expected to improve quarter by quarter.

Capacity expansion is advancing steadily, and the price of rare earths may continue to transmit smoothly. During the reporting period, the company approved the intelligent manufacturing project of Baotou Yunsheng Science and Technology Development Co., Ltd. with an annual output of 15000 tons of high-performance rare earth permanent magnet materials. The project will mainly be used to meet the market demand in downstream areas such as new energy vehicles, wind power generation, industrial motors and so on. We expect the company to achieve a production capacity of 19000 tons / year of high-performance NdFeB blanks in 2022, an increase of about 60% compared with 2021. In February this year, the Ministry of Industry and Information Technology and the Ministry of Natural Resources issued the first batch of rare earth total target control plan in 2022, the total amount is put on demand, and the fundamentals of supply and demand may support the high operation of rare earth prices, combined with the company's continuous promotion of large industries and major customer strategies. the price of rare earth raw materials is expected to continue to transmit smoothly to the lower reaches, and the growth of production and sales or boost performance will continue to increase.

Risk factors: macroeconomic fluctuations; prices of rare earth raw materials fluctuate sharply; downstream demand is lower than expected; project production is not as expected.

Investment suggestion: we expect the company to fully benefit from the business cycle of the rare earth permanent magnet industry in 2022, and the profit level may increase quarter by quarter. The net profit forecast of the company belonging to the parent company from 2022 to 2024 is 6.51 million yuan respectively, and the corresponding EPS forecast is 0.66 pound 0.95 million 1.26 yuan respectively. According to the company's industry, business structure, downstream consumer similarity and other dimensions, we select Jinli permanent magnet, earth bear and Youyan new materials as comparable companies, the current stock price of comparable companies in 2022 PE average value of about 25 times, reference to the rare earth permanent magnet industry comparable company average valuation level, combined with absolute valuation results, to maintain the company's target price of 20.00 yuan per share (corresponding to 2022 30 times PE), maintain the "buy" rating.