Net profit returned to the mother in '22 was +112.56% year on year, maintaining the “buy” rating
In '22, the company achieved revenue of 9.716 billion yuan (YOY +35.97%), net profit of 848 million yuan (YOY +112.56%), and net profit of 782 million yuan (YOY +107.48%) after deduction; it is basically in line with our expectations (835 million yuan). Based on the latest rare earth prices, we slightly lowered the 23-25 rare earth price assumption, and slightly lowered the 23-24 production and sales forecast based on the company's ongoing project commissioning progress. In the end, we estimated the company's net profit to the mother for 23-25 was 9.62/11.85/1,293 billion yuan (previous value of 1,28/1,692 billion yuan).
Comparable company Wind unanimously expects an average PE (23E) value of 17.5X. Considering that the company is an established leader in the industry, profitability has been clearly restored, and production capacity continues to expand, the company was given 20X PE in 23 years, with a target price of 15.8 yuan (previous value of 15.87 yuan), maintaining the purchase rating.
Multiple factors contributed to the company's net profit growth. Profitability performance was impressive. According to the announcement, the company's performance increased significantly year-on-year, mainly because 1) the company's price increased year-on-year; 2) the company continued to optimize management and strengthen centralized procurement of raw materials, which improved cost control; 3) exchange rate fluctuations led to an increase in the company's exchange income; 4) the company listed and transferred all of Nanjing Dugai Hi-Tech Co., Ltd.'s shares during the reporting period, contributing 71,2679 million yuan to the company's net profit.
The company's profitability has clearly recovered, and it has basically returned to normal levels
According to the company's announcement, the company has signed fixed-price sales agreements with some customers, which affected gross margin performance in 2020. Starting in '21, the company's single-quarter profitability gradually recovered, and by 22Q4, it had basically returned to normal levels. The quarterly gross sales margins of 22Q1, 22Q2, 22Q3, and 22Q4 companies were 17.48%, 18.49%, 18.06%, and 19.34%, respectively; net sales margins for the same period were 9.01%, 11.07%, 9.39%, and 12.8%, respectively. The company achieved gross profit margins and net interest rates of 18.33% and 10.36% respectively for the full year of '22, compared to +2.17pct and +3.68pct compared to '21. The company's overall profitability has clearly recovered.
Production capacity is still expanding, but it may be difficult for the 23-year performance to maintain high growth
According to investor notes (2023.02.16), the company plans to use allotment funds and self-financing to increase sintered NdFeB production capacity by about 10,000 tons. By the end of '22, 2000 tons will be built; therefore, the company's sintered NdFeB production capacity reached 22,000 tons by the end of '22. According to the company's expansion plan, another 8,000 tons of production capacity will be invested according to market demand in the future, and the company's production capacity will continue to expand. Considering the contribution of some non-recurring factors behind the high growth in the company's performance in '22, it may be difficult to maintain the high growth in performance in '23. However, under the trend of carbon neutralization+electric driving+intelligence, demand for NdFeB in the fields of new energy vehicles, wind power, industry, etc., will continue to rise. Along with the electrification of heavy trucks+construction machinery, the application of industrial permanent magnet motors may contribute to potential new demand, and we are optimistic about the long-term development of the industry.
Risk warning: downstream demand fell short of expectations, raw material prices fluctuated greatly, and industry policies changed.