China rare earth is one of the largest southern ion rare earth separation and processing enterprises, mainly engaged in rare earth oxides, rare earth metals, rare earth deep processing products management and trade. As an important enterprise in the medium and heavy rare earth separation industry, the total amount control plan index of medium and heavy ion rare earth smelting separation is in the forefront of the industry in recent years.
On September 13, 2022, the company changed its actual controller. After the change was completed, China rare Earth Group, a newly established central enterprise established at the end of 2021, directly held 16.10% of China rare Earth and 23.98% of China rare Earth through its wholly-owned subsidiary Minmetals rare Earth Group, totaling 40.08% of the total share capital. China's rare earth controlling shareholder is still Minmetals rare Earth Group, the actual controller has been changed from China Minmetals to China rare Earth Group, and the final actual controller is still SASAC of the State Council.
On October 26, 2022, the company released its third quarterly report for 2022. In the first three quarters of 2022, the company achieved revenue of 3.169 billion yuan, an increase of 58.21% over the same period last year, a net profit of 368 million yuan, an increase of 85.99%, and a non-return net profit of 363 million yuan, an increase of 87.30% over the same period last year. From a quarterly point of view, 2022Q3, the company achieved revenue of 968 million yuan, an increase of 125.72% over the same period last year, a decrease of 2.51% compared with the same period last year; a net profit of 63 million yuan, an increase of 122.50% year-on-year, a decrease of 53.60%; and a net profit of 62 million yuan, an increase of 129.34% over the same period last year and a decrease of 52.81%.
In the first three quarters of 2022, the company achieved a net profit of 368 million yuan, an increase of 170 million yuan over the same period last year. The core is that gross profit increased by 253 million yuan over the same period last year. The growth of gross margin is due to the rise in volume and price of rare earth products. In addition, it is worth noting that at the end of 2022Q3, the company's asset-liability ratio was only 12%. The company's asset-liability ratio fell to 12% from 30% in 2021, mainly due to the repayment of short-term loans from banks. By the end of 2022Q3, the company had borrowed 302 million yuan in short-term loans, down 86% from the same period last year and 161% from the previous month. The company's asset-liability ratio is lower and its assets are better, so it can further carry out technological research and development, capacity expansion or mergers and acquisitions of related assets to enhance profitability.
As the only listed company under China rare Earth Group, the company has a strong expectation of asset injection. China rare Earth Group has made a commitment to solve the problem of inter-industry competition within five years. At present, there are 72 rare earth mining enterprises and 33 rare earth smelting and separation enterprises under China rare Earth Group. In 2022, the separation index of China rare Earth Group has a total of 58500 tons of REO, accounting for 29% of the total, while Minmetals rare Earth Group (including China rare Earth listed companies) has a separation index of only 5700 tons of REO in 2021 (not disclosed in 2022), which has more room for growth.
In addition, the operation and implementation of Shenggongzhai rare earth exploration rights and Fetian rare earth exploration rights, which are owned by Huatai Xintuo, are in line with the relevant industry access qualifications, and Shenggongzhai rare earth mine exploration and mining management work is under way.
Investment advice: driven by demand in emerging areas, rare earth prices are expected to remain high. We expect the company's 2022-2024 return net profit to be 4.52,4.59 and 474 million yuan, with EPS of 0.46,0.47 and 0.48 yuan respectively. The PE corresponding to the closing price on October 31 was 63, 62 and 60 times respectively, and was given a "cautious recommendation" rating considering that the company, as the only listed company platform of the new central enterprise China rare Earth Group, had strong asset injection expectations and covered for the first time.
Risk tips: rare earth prices fall, asset injection is not as expected, and the progress of mine exploration and conversion is not as expected.