Event: in October 2022, Baotou Iron and Steel Co., Ltd. announced that the trading price of rare earth concentrate between the company and the related party Northern rare Earth planned to be adjusted to 37230 yuan / ton without tax from July 1, 2022, which was not passed by the General meeting of Northern rare Earth shareholders. Prior to the agreement between the company and Northern rare Earth, the related transaction price of rare earth concentrate was adjusted to 39189 yuan / ton, which was not passed by the Northern rare Earth shareholders' meeting. The follow-up company plans to sell rare earth concentrates by bidding, auctions and other public means.

The company's rare earth concentrate sales are becoming market-oriented, and the profitability of the rare earth business has been greatly improved. The company has an upstream and downstream relationship with northern rare earths. Previously, the company only sold rare earth concentrates to northern rare earths, and the related transaction price of rare earth concentrates was much lower than its market price. The proposal to raise the price of rare earth concentrate was not passed by the northern rare earth shareholders' meeting. In order to ensure the normal development of the sales business of rare earth concentrate, the company intends to sell rare earth concentrate by bidding, auction and other public means, and the sales price of rare earth concentrate will be raised to the open market price. At present, the price of rare earth carbonate (REO42%-45%) is 52900 yuan / ton. If the company sells rare earth concentrate at this price, it will be 26012.8 yuan / ton higher than the related transaction price of 26887.2 yuan / ton of rare earth concentrate at the beginning of the year. According to the trading volume of 57500 tons of rare earth concentrate in the fourth quarter, the company's net profit in rare earth business will increase by about 1.271 billion in 2022.

Affected by the downward trend of the steel market, the company suffered heavy losses in its steel business. According to the company's third quarterly report, the company's operating income in the first three quarters was 58.205 billion yuan, down 9.05% from the same period last year; the net profit belonging to shareholders of listed companies was-746 million yuan, down 119.75% from the same period last year. The operating income in the third quarter was 17.139 billion yuan, down 30.21% from the same period last year; the net profit belonging to shareholders of listed companies was-1.165 billion yuan, down 214.97% from the same period last year. The public sale of rare earth concentrate will greatly ease the performance pressure brought about by the company's steel business.

Investment advice and rating: the company's steel business is less profitable, but the company maintains its "buy" rating, taking into account the expected increase in the price of the company's rare earth concentrate and its huge rare earth reserves.

It is estimated that the company's operating income from 2022 to 2024 will be 800.59 million yuan, and the net profit will be 3.92 billion yuan, 45.51 billion yuan, respectively. With reference to the price-to-earnings ratio of the rare earth industry, the company is given 30 times PE, and the reasonable valuation of the company in 2023 is 136.53 billion yuan.

Risk hints: the risk that sales of new energy vehicles and wind power installations are lower than expected, resulting in lower-than-expected prices of rare earths; the risk of a downturn in the steel industry, leading to continued substantial losses in the company's steel business; and the risk that performance forecasts and valuation judgments are less than expected.