Incident: Zhenghai Magnetic Materials disclosed its 2022 annual report. In 2022, the company achieved operating income of 6.320 billion yuan, an increase of 87.52% over the previous year; achieved net profit attributable to shareholders of listed companies of 404 million yuan, an increase of 52.47% over the previous year. Among them, 2022 Q4 revenue was 1,762 million yuan, up 81.80% year on year and 2.25% month on month; Guimu's net profit was 99 million yuan, up 21.52% year on year, up 0.40% month on month; 2022Q4 achieved net profit of 89 million yuan, up 20.87% year on year.
The industry sentiment has not changed, and the volume and price of the magnetic materials sector have increased sharply. 1) Volume: In 2022, the company stepped up production capacity. The actual production capacity of NdFeB permanent magnet material blanks was 16,500 tons, an increase of 37.5%; the company achieved sales of 1,5316 tons of NdFeB permanent magnet material blanks, an increase of 47.30% over the previous year (excluding component blanks). 2) Price: The rise in rare earth prices is compounded by the optimization of the company's product structure. In 2022, the average price of the company's NdFeB permanent magnet materials was about 410,000 yuan/ton, an increase of 90,000 yuan/ton over the previous year (+28%). 3) Profit: As rare earths fluctuated greatly in 2022, the company's gross margin fell slightly to 14.39%, a year-on-year decrease of 5.19 pcts, of which the 2022 Q4 gross margin was 16.00% (down 2.88 pcts year on year, up 3.50 pcts month on month), and the company's gross margin began to recover in the fourth quarter. From the perspective of profit per ton, the company's net profit per ton of rough NdFeB permanent magnet materials increased slightly from about 29,000 yuan/ton to 30,400 yuan/ton, and profitability increased slightly.
Some Ogun products have already been mass-produced, and the trend is improving. The company's NEV motor drive system business is operated by its subsidiary Shanghai Dajun. The performance and delivery schedule of a motor controller product developed by Shanghai Dajun in collaboration with internationally renowned manufacturers in 2022 were recognized by customers. Mass production has been achieved, with annual production and sales exceeding 20,000 units. In terms of performance, Dagun Company achieved revenue of 91 million yuan, an increase of 37% over the previous year; however, due to increased market competition and rising raw materials compounded by the epidemic, Dagun achieved net profit of -62 million yuan (net profit in 2021 - 37 million yuan), and losses increased by 25 million yuan. Looking ahead, along with mass production of major products, it is expected that losses will be reversed.
It has fully entered the supply chain of the world's mainstream car companies, and the automotive sector accounts for 65% of revenue. Benefiting from the demand boom, the company's various business areas have grown to varying degrees, especially the automotive sector, which has achieved rapid growth. Specifically, the automotive sector is the company's largest application area, achieving sales revenue of over 4 billion yuan, an increase of 119% over the same period last year, accounting for 65% of revenue. Among them, sales revenue in the energy saving and new energy vehicle market segment increased 170% year on year, accounting for close to 50%, and sold 3.49 million sets of drive motor magnets for energy-saving and new energy vehicles, up 85% year on year; in addition, the company's sales revenue in the consumer electronics market increased 108% year on year; sales revenue in the household appliances market increased 94% year on year.
The time is right to release production capacity. The company currently has three NdFeB permanent magnet production bases in Yantai, Fuhai, and Nantong. Currently, it has a NdFeB production capacity of 24,000 tons (10,000 tons in the East-West plant, 8000 tons in the Fuhai plant, 6,000 tons at the Nantong base); the total planned production capacity of the Nantong base is 18,000 tons. The production capacity of another 12,000 tons will be gradually implemented according to the company's business development. After everything is completed in the future, the total production capacity of the company will reach 36,000 tons, which is expected to increase by 50% compared to the end of 2022.
Profit forecast and investment recommendations: Assuming that the sales volume of NdFeB magnet blanks in 23/24/25 was 20000/26000/30,000 tons, respectively, and the NdFeB blank price was 36/38/390,000 yuan/ton respectively; the company's total revenue for 23/24/25 is estimated to be 73.37/9947/119.973 billion yuan respectively, up 16%/36%/20% year-on-year; Guimo's net profit was 596/883/10.59 billion yuan, up 48%/50%/19%, respectively. The current stock price corresponds to 23/24/25 PE valuation of 17x/11x/10x. Overall, maintain a “buy” rating.
Risk warning events: Fluctuations in prices of main products, fluctuations in raw material costs, changes in industrial policies, project progress falling short of expectations, demand falling short of expectations, demand measurement deviations, and risks of delays in the use of public information in research reports, etc.