3Q22 performance is in line with our expectations
The company announced 3Q22 results: 1-3Q22 income of 18.375 billion yuan, year-on-year + 64.8%; net profit of 212 million yuan, + 68.7%; deduction of non-parent net profit of 224 million yuan, + 49.1% of the same period last year. Among them, 3Q22 income is 6.349 billion yuan, year-on-year + 45.1%, month-on-month-11.3%; return-to-mother net profit 25 million yuan, year-on-year-42.5%, month-on-month-76.1%; deduction of non-return net profit 30 million yuan, year-on-year-38.8%, month-on-month-72.5%. 3Q22's performance is in line with our expectations.
Affected by the month-on-month correction of rare earth prices and the substantial increase in asset impairment losses due to the price decline, 3Q22 performance is under pressure. First, due to the early epidemic situation and the influence of the traditional off-season downstream of magnetic materials, the price of rare earths has been adjusted back from the previous month. According to Asia Metal net, the average price of 3Q22 praseodymium and neodymium oxide is 78.79 million yuan / ton, compared with-20%. Second, due to the sharp decline in the prices of rare earth-related products in 3Q22, the company is prepared to increase significantly in the inventory price reduction during the reporting period. According to the company announcement, 1-3Q22 provides for asset impairment loss of 146 million yuan, reducing return to the mother net profit of 125 million yuan, of which 3Q22 provision asset impairment loss of 126 million yuan, resulting in 3Q22 performance under pressure.
Trend of development
Rare earth prices have rebounded and stabilized, and the company's subsequent impairment pressure is expected to be reduced. According to the Asia Metal Network, as of October 28, the prices of praseodymium, neodymium oxide and terbium oxide have risen by 12% and 5% respectively from their lows in early September. We believe that as the Ministry of Industry and Information Technology made it clear on September 2 that the price of rare earths is stable, the integration of large rare earth groups continues, and the increase in imports of rare earth mines in the United States and Myanmar is limited, the overall supply shows a tight pattern, and the arrival of the traditional peak season of downstream magnetic materials is expected to support the price of rare earths to continue to rise, we expect the company's subsequent impairment pressure may be reduced, the company's profits are expected to gradually pick up.
The company's key projects are progressing smoothly and are expected to usher in two inflection points of performance and management mechanism. First, according to the company's announcement, on July 8 this year, the company added heavy rare earth mining certificates to Xinfengzuokeng Mine, increasing rare earth reserves by 111000 tons, about eight times the company's total reserves in rare earth mines, laying the foundation for follow-up development and performance growth. Second, we believe that with the development of Xinfeng Mine and Huadian Mine, the landing of Fuyuan relocation and upgrading project, and the construction of rare earth metals and Shengyuan magnetic production capacity, the company's performance is expected to usher in a major inflection point. Third, after the new leadership takes office, with the "three fine management" as the starting point, the comprehensive deepening reform measures continue to fall to the ground, and business performance is expected to burst out in an all-round way.
Profit forecast and valuation
Keep profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to a price-to-earnings ratio of 53.4 times 2023 / 30.3 times 2023. Maintain an outperform industry rating and a list price of 45.26 yuan, corresponding to 56.4 times 2022 price-to-earnings ratio and 32.0 times 2023 price-to-earnings ratio, which has 5.7% upward space compared with the current stock price.
Risk.
The supply of rare earths is higher than expected and the demand for new energy vehicles is lower than expected.