Incident: The company released its 2022 annual report. During the reporting period, it achieved revenue of 9.716 billion yuan, +36% year on year, net profit of 848 million yuan, +113% year on year, after deducting net profit of 782 million yuan from non-return mother, +107% year on year, which is above the median value of the previous performance forecast range. Among them, Q4 achieved revenue of 2,208 million yuan in a single quarter, -1% year on year, net profit of 232 million yuan, +20% year on year, after deducting net profit of 171 million yuan from non-return mother, -12% year on year.
The boom in new energy vehicles continues to rise, driving the company's performance in 2022. In 2022, the company achieved a gross profit margin of 18.33%, a year-on-year increase of +2.17pct, and a net profit margin of 10.36% and a year-on-year rate of +3.68pct. The main reasons for the increase in the company's performance in 2022 are: (1) the NEV market continues to be strong, and the application of high-performance NdFeB permanent magnet materials is still growing. At the same time, the company's product prices have increased year on year, and operating income has increased markedly; (2) cost control capabilities have continued to increase, and the current sales, management (excluding R&D) and financial expenses rates reached 1.4%/3.55%/-1.25%, respectively +0.02/-0.12/-2.39pct over the previous year; (3) non-recurring earnings rose sharply. In this period, the company transferred all of the shares of Nanjing Mainland Pigeon Hi-Tech Co., Ltd., achieving a net profit of 71,2679 million yuan. As a result of changes in the profits of joint ventures, investment income reached 126.1222 million yuan, +8493% year on year.
Production capacity expansion is progressing steadily, and performance growth is guaranteed. The company originally produced 20,000 tons of sintered NdFeB, and plans to increase sintered NdFeB production capacity by 10,000 tons using allotment of shares and self-financing (the expansion of production capacity has now been completed by 5,000 tons). Around the end of 2024, the company plans to expand production by another 21,000 tons, and the total production capacity is expected to reach 15,000 tons. With the gradual release of new production capacity, the company's performance is expected to continue to grow.
Investment advice: As the world's top NdFeB permanent magnet manufacturer, the company has outstanding R&D and innovation capabilities and continues to adapt to market development needs. We expect the company's net profit to be 935/1,175/1,604 million yuan respectively in 2023-2025, EPS is 0.77/0.97/1.32 yuan respectively, and the corresponding PE is 17.07/13.58/9.94 times respectively. This is covered for the first time, giving it a “recommended” rating.
Risk warning: The price of rare earth permanent magnets has dropped sharply; the company's production capacity release fell short of expectations; downstream demand fell short of expectations.