Incident: The company released its report for the third quarter of 2022. Q3 achieved revenue of 1,796 million yuan, an increase of 80.72% over the previous year; realized net profit of 91.1711 million yuan, a year-on-year decrease of 32.72%; net profit after deducting non-return to the mother was 103 million yuan, an increase of 25.48% over the previous year; and EPS was 0.09 yuan/share, a year-on-year decrease of 29.77%.
Comment:
The company's Q3 revenue maintained an upward trend, and the share of new energy vehicles increased. Benefiting from the company's year-on-year increase in NdFeB permanent magnet material sales and unit sales price, the company's revenue in the first three quarters of 2022 increased 92.52% year-on-year to 5.002 billion yuan. Among them, sales revenue of NdFeB permanent magnet materials used in new energy vehicle applications increased 245% year-on-year to 1,045 million yuan, sales revenue of NdFeB permanent magnetic materials used in the consumer electronics sector increased 46% year on year to 1,648 billion yuan. The revenue revenue for the three fields increased 56% year-on-year to 1,672 billion yuan. The revenue share of the three fields was 2.5 billion yuan, respectively %, 35%, and 40%. Based on the data disclosed in the 2022 interim report, we expect the revenue of NdFeB materials in the new energy vehicles, consumer electronics and industry and other fields in Q3 to be 445, 548, 572 million yuan respectively, accounting for 28%, 35%, and 37%. The share of new energy vehicles is increasing. However, due to fluctuations in the price of rare earth raw materials, the company's operating cost growth rate exceeded the year-on-year growth rate of revenue, causing gross margin to fall 5.26 pct year on year and 6.17 pct to 18.35% month on month, net interest rate fell 7.98 pct year on year and 3.19 pct on month to 5.11% month on month.
Crystal's diffusion production capacity has increased rapidly, and the market share of the NEV industry has steadily increased. The company successfully promoted the expansion of crystal diffusion production capacity according to the plan in the third quarter, adding 4,000 tons of crystal diffusion production capacity. At the end of September, it had a back-end production capacity of 10,000 tons of crystal diffusion NdFeB permanent magnet materials per year. Furthermore, Baotou Yunsheng successfully started construction of a high-performance rare earth permanent magnet material intelligent manufacturing project with an annual output of 15,000 tons. Production is currently being carried out in an orderly manner according to plan. In the downstream sector, the company delivered a total of about 914,000 main drive motors domestically in the first three quarters, and the domestic market rate increased from 18.6% in the first half of 2022 to 23.6% in the third quarter.
Rare earth prices fell back and corporate profits recovered, and demand for magnetic materials maintained high growth. According to Baichuan Yingfu, the price of 2021Q3-2022Q4 praseodymium metal is 73.27, 94.90, 124.32, 111.14, 88.81, 824,400 yuan/ton. The price of praseodymium metal currently remains stable at a low level, which is good for the profit recovery of magnetic material companies. Furthermore, demand for magnetic terminals has maintained high growth. According to the China Automobile Association, China's NEV production and sales volume in 2021H1 was 4,717,500 units and 4,566,800 units respectively, up 117.78% and 111.76%, respectively. Production and sales continued to grow rapidly. Furthermore, under the carbon neutrality policy, the energy-saving requirements of motors will gradually increase, and the penetration rate and demand for energy-saving motors will increase. The explosion in demand is compounded by the clearance of low-end production capacity brought about by high costs over the past year, the competitive pattern of magnetic materials has improved, and prices are expected to run high for a long time.
Profit forecast and investment rating: We expect the company's net profit to be 4.55, 683, and 985 million yuan in 2022-2024, and the PE corresponding to the closing price on November 1 will be 23x, 15x, and 11x respectively. Considering the continued boom in downstream fields such as NEVs and wind power, the company's smooth customer expansion in the NEV field, and the gradual release of the company's production capacity over the next 3 years, we will maintain the company's “buy” rating.
Risk factors: The progress of the production expansion project fell short of expectations; the expansion of the new energy business fell short of expectations; downstream demand fell short of expectations.