The company released its 2022 annual report, achieving revenue of 22.86 billion yuan, an increase of 42% over the previous year; net profit of Guimu was 232 million yuan, an increase of 67% over the previous year; after deducting net profit of non-Gumo, net profit of 247 million yuan, an increase of 72% over the previous year.

Commentary:

The company's performance mainly benefited from the increase in the share of its own production of rare earth mines and the rise in the price of rare earth products. As the company obtained a safe production license for mining at the Shanping Yuanrenju rare earth mine, the company's rare earth mine production increased dramatically. In '22, the production of rare earth ore was 1,523 tons, an increase of 123.6% over the previous year. According to Baichuan Yingfu data, the average price of domestic medium and heavy rare earth mines in 2022 was 330,000 yuan/ton, an increase of 23% over the previous year. The prices of the main rare earth products, neodymium oxide, and zinc oxide, increased 38.6%, -4% and 57.5% year-on-year.

The investment income of the company's joint ventures increases the company's profits. The company's investment income in joint ventures in 2022 was 147 million yuan, an increase of 125% over the previous year. The main reason was that Dabaoshan Mine, a 40% shareholding company, achieved revenue of 2 billion yuan for the full year of '22, with a total profit of 383 million yuan through a series of technological reforms, yield, production increases and cost reductions, and a total profit of 383 million yuan, and added about 45,000 tons of copper metal through rich ore prospecting exploration projects.

The development of newly obtained medium and heavy rare earth mineral resources continues to advance. The Xinfeng Zuokeng Mine, for which the company obtained a mining license in July 22, is currently the largest monomer ion adsorption rare earth mine in China. Its reserves are 8 times the company's total resource reserves of rare earth mining mines. Currently, various work such as EIA, security assessment, land acquisition and leasing is underway, and it is expected to be completed and put into operation in 2024.

The development of high-end magnetic materials for curve overtaking cars is expected to start a second curve of growth. The first phase of the 8000 t/a high-performance NdFeB permanent magnet material project (2000 tons), which the company plans to raise additional capital in 2022, was successfully put into trial production in January 2023. With Academician Li Wei's workstation, the country's chief expert on rare earth magnets, settled in the company, and the company's strategic cooperation with downstream end customers progressed one after another, the company's magnetic materials business is expected to start a second growth curve.

Protective mining of medium and heavy rare earths is expected to continue without increasing quotas, and the company may produce at full quota. Due to the limited reserves of medium and heavy rare earth resources and their more scarce characteristics, when mining rare earth mines, they generally choose in-situ immersion methods to mine minerals. Environmental pressure is very high. Currently, it faces a strict environmental impact assessment system in China, which has a large entry threshold for green and efficient mining processes. Due to various reasons, the actual release of the current medium and heavy rare earth ore quota is insufficient, and with the completion of the Guangsheng Nonferrous Earth Mine integration work and the safety production license issued by the Guangdong Provincial Emergency Management Administration in 2022, the company is expected to meet the quota in 23.

Investment suggestions: As the target of scarce medium and heavy rare earth resources in China, the company's future mineral production continues to increase, management is improving, and the integrated layout of the industrial chain has entered a stage of rapid growth. We expect the company's net profit of 4.9/79/970 million yuan in 2023-2025, corresponding to the current market value of PE 28 times, 17 times, and 14 times. According to the PE valuation of comparable companies, the company was given a price-earnings ratio of 44 times in 2023, with a target price of 63 yuan, maintaining a “strong push” rating.

Risk warning: Downstream demand fell short of expectations, and production expansion progress fell short of expectations.