Event
The company announced on the evening of June 22 that it had re-signed the rare Earth concentrate supply contract with Northern rare Earths, and proposed that from July 1, 2022, the sales price of rare earth concentrates of both sides would be adjusted to 39189 yuan per ton (dry volume, REO=50%) without tax, with every 1% increase or decrease in REO, 783.78 yuan per ton (dry volume) excluding tax, and the total trading volume of rare earth concentrates in 2022 would not exceed 230000 tons (dry volume, REO=50%).
Comment
The price of rare earths has increased by 45.75% compared with the agreement price at the beginning of the year.
According to the 22-year January agreement announcement of the company, the selling price of rare earth concentrate is 26887.2 yuan / ton excluding tax, and the total trading volume is not more than 230000 tons in 22 years. The trading price is determined every quarter.
With this price adjustment, the price per ton has increased by 12301.8 yuan, a range of more than 45%. Benefiting from the tight balance between supply and demand of rare earths, the price of 22H1 light rare earths fluctuated upwards. up to now, the average price of praseodymium and neodymium oxide is 9662 million yuan / ton, up 59.46% from the 21-year average price. The average price of 22H1 70%REO rare earth concentrate in Inner Mongolia is 79000 yuan / ton, which is much higher than the 22H1 / 70%REO agreement price of 369,000 yuan / ton. therefore, according to the pricing agreement, the company has raised the sales price of rare earth concentrate, and the current agreement price discount 70%REO is 54000 yuan / ton. It is estimated that the gap between supply and demand of praseodymium-neodymium oxide is 8400 tons in 22 years, and the gap will expand to 15000 tons in 25 years. Praseodymium-neodymium oxide prices are expected to operate at a high level, and there is still room for agreement prices to rise.
The volume and price of rare earth concentrate have risen in the past 22 years, and the profit is flexible.
According to the company's 21 mid-year report, the gross profit margin of rare earth concentrate is more than 75%. Due to the low cost of using rare earth tailings resources, the company is expected to make a profit of more than 20,000 yuan per ton in 22 years.
The total volume of rare earth related transactions between the company and the north in 22 years is planned to not exceed 230000 tons, assuming that the last half of the year is 115000 tons each, and the revenue corresponding to this agreement will increase by about 1.4 billion yuan over the previous forecast in 22 years. The gross profit will increase by about 1 billion yuan, and the gross profit of the company's rare earth business in 22 years is expected to exceed 5.5 billion yuan, an increase of about 150% over 21 years.
Profit Forecast & Investment suggestion
Due to the company's agreement with Northern rare Earth to raise the supply price of 22H2 rare earths, the company's rare earth business is expected to rise in volume and price by 24%, 35% and 38% respectively to 4.953 billion yuan, 6.564 billion yuan and 7.357 billion yuan, respectively, corresponding to 0.11,0.14,0.16 yuan for EPS and 17 times, 13 times and 12 times for PE respectively, maintaining the "buy" rating.
Risk hint
Steel business profit decline risk; downstream demand is lower than expected.
