Event: China rare earths released its three-quarter 2022 report that the company achieved operating income of 3.169 billion yuan in the first three quarters of 2022, an increase of 58.21% over the same period last year, of which 22Q3 achieved revenue of 968 million yuan in a single quarter, up 125.72% from a year earlier, a decrease of 2.51% from the previous quarter. In the first three quarters of 2022, the net profit attributable to shareholders of listed companies reached 368 million yuan, an increase of 85. 5% over the same period last year.

99% of par 22Q3 realized a net profit of 63 million yuan in a single quarter, an increase of 122.50% over the same period last year. The deduction of non-net profit in the first three quarters of 2022 was 363 million yuan, while that of 22Q3 in a single quarter was 62 million yuan, an increase of 129.34 percent over the same period last year. The company's performance is in line with expectations.

Profitability continues to improve. The company's 22Q1-Q3 gross profit margin was 18.55%, an increase of 1.85pcts over the same period last year. Among them, 22Q3's single-quarter gross profit margin was 11.66%, year-on-year growth of 4.85pcts, month-on-month decrease of 9.09pcts, mainly due to the short-term decline in rare earth prices; the company's net profit rate of 11.73% in the first three quarters, year-on-year growth of 1.40pcts, of which 22Q3 single-quarter net profit was 6.41%, down 0.75pcts from the same period last year. In the first three quarters, the company's period expense rate decreased 1.06pcts compared with the same period last year, of which the 22Q3 single-quarter expense rate was 2.34%, down 4.27pcts from the same period last year. Specifically, the 22Q3 single-quarter sales expense rate decreased 0.16pcts compared with the same period last year, mainly due to the decrease in product sales in the third quarter, resulting in a decline in warehousing fees, commodity inspection fees and other fees; the management expense rate decreased by 1.94pcts compared with the same period last year; and the financial expense rate decreased from 2.11% → 0.39% to 1.72pcts compared with the same period last year. Benefiting from the rare earth price and cost control, the company's profitability continues to increase.

Relying on China rare Earth Group, deeply ploughing the rare earth industry. The company has a layout in the rare earth resources and smelting separation end: on the rare earth resources side, the group Jianghua rare earth mine is currently the company's main mineral source, which has been put into production in 2021, and the planned production capacity has increased from 2000 to 5000 tons; the related work of exploration and conversion of exploration rights for Shenggongzhai and Fetian rare earth deposits is being promoted, and its ion phase REO reserves total 101400 tons, and the layout of the source end provides resource guarantee for the company's development. At the smelting separation end, the company now has two smelting processing plants, Dingnan Dahua and Guangzhou Jianfeng, with a smelting separation capacity of 7400 tons and an output of 2089 tons in 2021. At the index end, the quota of China Minmetals Group has been stable in recent years. In 2021, the group has a rare earth mining index of 2010 tons and a smelting separation index of 5658 tons.

During the reshaping of the rare earth industry. The supply of rare earths is strictly limited by indicators, especially medium and heavy rare earths, with few reserves and limited environmental protection, which is even more scarce. We estimate that the demand for praseodymium and neodymium oxide in 2022-2023 is 7.54 and 86300 tons respectively, the year-on-year growth rate is-3% and 14% respectively, the supply is 7.41 and 86100 tons respectively, and the gap between supply and demand is-1291 and-160tons respectively; the gap between supply and demand for dysprosium oxide 2022-2023 is-73 tons and-177tons respectively; the gap between supply and demand for terbium oxide 2022-2023 is-55 and-49 tons respectively. On the whole, the supply of rare earth industry is rigid, while the downstream demand driven by new energy and energy-saving motors is expected to achieve a long period of high prosperity. At the same time, with the establishment of China rare Earth Group, the rare earth industry reshaping will continue.

Profit forecast and investment advice: we assume that the average price of praseodymium-neodymium oxide in 2022-2024 is 10 thousand yuan / ton in 85-70-75, dysprosium oxide is 26010 million yuan / ton, the average price of terbium oxide is 1380 pound 1400 pound 1405 million yuan / ton, it is estimated that the company's net profit in 2022 pedigree 2023 pedigree is 4.33,4.64, 488 million yuan respectively, according to the market capitalization calculation of 33.8 billion on November 11, the corresponding PE is 78, 73, 69X respectively. Coverage for the first time, giving a "overweight" rating.

Risk reminder events: the risk caused by product price fluctuations to the company's performance changes, the release of production capacity is lower than expected, the industry boom is not as expected, the risk of repeated domestic and foreign outbreaks, the risk of deviation in demand measurement, the risk of information lag or untimely updating may exist in the public data used in the research report.