Incidents:
The company announced that 2022H1 achieved revenue of 41.1 billion yuan, an increase of 4% over the previous year; Guimu's net profit was 4.2 billion yuan, a year-on-year decrease of 85%.
Comment:
The rare earth business has performed brilliantly, and resource attributes have gradually become apparent. 2022H1 produced 99,400 tons of rare earth concentrate, sold 108,800 tons, earned 3,073 million yuan, and gross profit of 2,615 million yuan. The Baiyun Ebo mine tailings depot owned by the company has resource reserves of 200 million tons and reserves of rare earth foloxides of about 13.82 million tons, ranking second in the world. The Baiyun Ebo Mine, owned by Baogang Group, the controlling shareholder, is a world-famous treasure trove of resources. It has 35 million tons of rare earth foloxides, ranking first in the world.
The steel business dragged down overall performance: the company's net profit for the single quarter of 202Q2 was 88 million yuan, down 73% from the previous quarter. Since the rare earth concentrate business is a related transaction with rare earths in the north, the price and transaction volume have already been determined; furthermore, the company has tailings depots, and the cost of rare earth concentrate is also low; therefore, the reason for the month-on-month decline in Daifuku is weak demand and falling steel prices, and the company's steel sector is eroding the rare earth concentrate business.
Fluorite's resource endowment is also excellent, yet to be released. 2022H1 has produced 43,900 tons of fluorite and sold 42,600 tons. The transformation of the two pilot lines has basically been completed; with the commissioning of the two pilot lines in the second half of the year, fluorite production is expected to increase dramatically. The Baiyun Ebo mine tailings depot owned by the company has 43.92 million tons of fluorite reserves; the Baiyun Ebo Mine owned by Baogang Group, the controlling shareholder, has proven fluorite reserves of 130 million tons, ranking second in the world
Build a special brand of rare earth steel. The company continuously tracks and observes the operation of 60kg/Mu76Crrehu heat-treated steel rails and 66Cunire corrosion-resistant rare earth rail lines, conducts research on the mechanism of rare earth sulfuric acid corrosion resistance, enhances the sulfuric acid environmental service life of steel used in railway carriages, develops key technologies for the production of rare earth low temperature and fatigue resistance, and achieves batch supply of low-cost rare earth wear-resistant steels BTNM360, BTNM400 and BTNM450. The company's eight products, including steel rails for high-speed railways, cold-rolled unoriented electrical steel belts, and hot-rolled steel sheets and steel belts for automobile structures, all passed the review by the China Steel Association expert group and won the title of “Gold Cup High Quality Product”; steel rails for high-speed railways also won the title of “Gold Cup Premium Product”.
Profit forecast and investment rating: Based on the company announcement, we forecast the company's revenue for 2022-2024 to be 849/885/906 billion yuan respectively, up -1%/4%/2% year-on-year; based on the company's Q2 performance, we adjusted the company's net profit attributable to the mother in 2022-2024 from 35/45/4 billion yuan to 20/30/4 billion yuan, an increase of -30%/50%/33% over the previous year; the corresponding PE was 47/31/23x, respectively. Considering that the company is a leader in rare earth resources, the steel business is expected to steadily pick up in the future under steady growth; furthermore, the company also has resources such as fluorite and thorium that have yet to be re-valued. As a result, the company's “buy” rating is maintained.
Risk warning: demand falls short of expectations; costs fluctuate.