The net profit of H1 company deducting non-return in 2022 was about 268 million yuan, an increase of 44.57 percent over the same period last year, of which the net profit of Q2 deduction was about 176 million yuan, an increase of 92.6 percent over the previous month. Under the strategic goal of "double carbon", the downstream demand for new energy vehicles, energy-saving and efficient motors, wind power and industrial robots is expected to continue to grow, and the company is expected to fully benefit from the industry business cycle, maintaining the company's target price of 20 yuan and maintaining a "buy" rating.

The performance in the second quarter exceeded expectations, and the rise in volume and price contributed to the growth. In 2022, H1, the company achieved a revenue of 3.206 billion yuan, an increase of 99.82% over the same period last year, a net profit of 268 million yuan, an increase of 44.57% Q2 in 2022, and a revenue of 2.005 billion yuan, an increase of 116.34% and 66.95% over the same period last year. The net profit of deducting non-return to the mother was 176 million yuan, an increase of 27.66% and 92.6% respectively. The main reasons for the sharp increase in revenue and operating profits in the first half of the year: 1. The price is transmitted smoothly, the price of rare earth raw materials rose greatly in the first half of this year compared with last year, and the sales price of the company's high-performance NdFeB products also increased compared with the same period last year. Production and sales continued to improve, the company's high-performance NdFeB production capacity orderly expansion in the first half of the year, capacity utilization remained high, volume and price rose to boost performance.

Continue to make efforts in the field of new energy vehicles, product market share may continue to increase. In the domestic market, the company has reached a strategic partnership with manufacturers of electric drive systems such as founder Motor and Wolong Electric Drive and has been approved to enter its supply chain system. In overseas markets, the company is the main supplier of magnetic materials to continental Europe and Schaeffler. According to the company's announcement, the company's sales revenue in the application field of new energy vehicles exceeded 600 million yuan in the first half of the year, an increase of more than 2.5 times over the same period last year. At present, it provides matching for 10 of the top 15 hot-selling models, with a total of 494000 main drive motors. The market share of new energy vehicles in China is about 18.6%. During the reporting period, the company seized the opportunity of the development of low-carbon economy and intelligent manufacturing, and occupied the main share of the Japanese and domestic servo motor market. As the company continues to expand the market of new energy vehicles and servo motor applications, the market share may be further increased.

Capacity expansion will be launched as needed, and cost reduction and efficiency will continue to be promoted. During the reporting period, Baotou Yunsheng Technology Development Co., Ltd. successfully started the intelligent manufacturing project of 15000 tons of high-performance rare earth permanent magnet materials. By the end of the reporting period, the company had a grain boundary diffusion capacity of 0.6 million tons / year. The company expects that the grain boundary diffusion capacity will reach 10,000 tons / year by the end of the third quarter, effectively reducing the comprehensive cost of the product. By the end of the reporting period, the company has an annual production capacity of 15000 tons of high-performance NdFeB billets. We expect the company to achieve an annual production capacity of 21,000 tons of high-performance NdFeB billets by the end of 2022, an increase of about 75% over 2021. The capacity expansion plan is carried out in an orderly manner.

Led by the strategic goal of "double carbon", the rare earth permanent magnet industry has entered the fast lane. Under the promotion of global environmental protection policy and domestic "double carbon" policy, new energy vehicles, industrial motors, industrial robots, wind power generation, variable frequency air conditioners, consumer electronics, rail transit and other fields may continue to develop at a high speed. We expect that domestic and overseas new energy vehicles will increase the demand for high-performance NdFeB by 60,000 and 78000 tons respectively in 2030, and the global demand for high-performance NdFeB may reach more than 360000 tons in 2030. The downstream demand of the rare earth industry is expected to maintain a medium-and high-speed development trend for a long time, and the whole rare earth industry chain may enter a new cycle of high-quality development.

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 40 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.