Summary of events: on June 22, the company issued an announcement: the company re-signed the rare earth concentrate related transaction agreement with northern rare earths, proposing that from July 1, 2022, the sales price of rare earth concentrate of both sides will be adjusted to 39189 yuan per ton (dry volume, REO=50%) without tax, with each increase or decrease of 1% REO, 783.78 yuan / ton (dry volume) excluding tax, and the total trading volume of rare earth concentrate will not exceed 230000 tons (dry volume, REO=50%) in 2022.
Analysis and judgment:
Price: the contract agreement price will increase by 48.67% month-on-month in the second half of the year. The average annual price in 2022 will increase by 105.47%. The contract agreement price has increased by 48.67% compared with the first half of the year, which is basically close to the market price. Assuming that the company's output of rare earth products in the last half of the year is 115000 tons, the average product price in 2022 is 32774.5 yuan / ton (dry volume, REO=50%), a year-on-year increase of 105.47%, and the company's rare earth business gross profit will increase significantly.
Volume: the total trading volume of rare earth concentrate in 2022 remained at 230000 tons, + 27.78% compared with the same period last year. The contract maintains that the total trading volume of rare earth concentrates in 2022 will not exceed 230000 tons, which is no more than 180000 tons agreed in the 2021 contract, an increase of 27.78 percent over the same period last year.
The company's rare earth oxide reserves of 13.82 million tons, rare earth concentrate production capacity of 450000 tons, rare earth plate long-term prospects. Baiyun Obo Mine, owned by Baotou Iron and Steel Group, the controlling shareholder, is a world-famous treasure house of resources. by 2021, it has proven reserves of 35 million tons of rare earth oxides, ranking first in the world. Bayan Obo mine tailings reservoir reserves of 200 million tons, rare earth oxide reserves of about 13.82 million tons, the company's rare earth concentrate production capacity of 450000 tons. Rare earth downstream new energy vehicles + energy-saving motors take the lead, the demand is more blooming, while the domestic rare earth quota at the supply side is growing steadily, overseas mines are difficult to increase in the short term, the industry pattern is still in short supply, and the company's rare earth sales price is expected to rise for a long time.
Otherwise, the economic bottom plus double carbon policy supports the rebound of steel business profits in the second half of the year. The company has an iron and steel production capacity of 17.5 million tons and has formed a production pattern of four fine lines of "board, tube, rail and line". Due to lower-than-expected downstream demand and limited supply of upstream raw materials, steel mill profits continued to shrink in the first half of the year. Looking forward to the second half of the year, under the background of "double carbon", crude steel production will continue to be reduced in 2022, steel supply will continue to be constrained; demand will fade along with the "steady growth" policy, the impact of the epidemic will fade, and demand will pick up substantially in the second half of the year. the supply of raw materials such as superimposed scrap, iron ore and coking coal continues to recover, and profits of the iron and steel business are expected to pick up significantly in the second half of the year.
Investment advice: rare earth plate development prospects, "steady growth" and "double carbon" background, iron and steel plate profits are expected to pick up. We expect the company's 2022-2024 net profit to be 3.308, 59.12 and 7.023 billion, corresponding to the closing price of PE on June 22, 2022, which is in turn multiple of 28-15-13, maintaining a "recommended" rating.
Risk tips: the price of raw materials is rising rapidly; downstream demand is not up to expectations; macro risks and so on.