Matters:
The company released its 2022 annual report and the first quarter report of 2023, achieving total revenue of 3.786 billion yuan (+27.33%) for the full year of 2022; net profit of 416 million yuan (+112.70%); net profit of 410 million yuan (+116.65%) after deduction of net profit of 410 million yuan (+116.65%). The company achieved revenue of 1,481 million yuan (+22.60%) in the first quarter of 2023 and net profit of 19 million yuan (-88.42%). The company plans to pay 0.4 yuan (tax included) for every 10 shares.
Ping An's point of view:
The full-year performance of 2022 was high, and production of rare earth products increased dramatically. In 2022, the company's production of rare earth products reached 3,664 tons, an increase of 75.44% over the previous year; sales volume was 3978.76 tons, a decrease of 52.51% over the previous year. The decline in sales was mainly due to the adjustment of the company's sales structure, and trade volume declined year-on-year. Prices of rare earth products rose in 2022, and the company's product output increased combined with business structure optimization. Gross margin increased 4.38 percentage points compared to 2021, and profitability increased significantly.
The industrial chain extends upward, and mining and metallurgy integration is advancing. In 2022, the company plans to acquire 94.67% of Zhongxi Hunan's shares held by Minmetals Rare Earth Group through fixed additional capital, and progress has now been made in stages. Zhongli Hunan is the mining project with the largest single ionic rare earth mining index in the country. In the long term, it will further strengthen resource-side security for the company's rare earth smelting business. At the same time, the upgrading and resumption of production of rare earth mines in southern Gannan during the reporting period has achieved positive results. The integrated layout of rare earth mining and metallurgy is expected to be implemented at an accelerated pace, the company's profits will increase further, and profitability will increase simultaneously.
Backed by China Rare Earth Group, industry integration has accelerated, and growth potential continues to be highlighted. Since the establishment of China Rare Earth Group, the actual controller of the company, in 2021, the pace of integration of China's rare earth industry has accelerated. Medium and heavy rare earth resources represented by Jiangxi, Guangxi, Hunan and other places have been further concentrated. Medium and heavy rare earth mining indicators have been concentrated simultaneously. China Rare Earth Group accounted for 67.9% of the first batch of medium and heavy rare earth mining indicators in 2023. At the aggregate level, China's first batch of medium and heavy rare earth indicators in 2023 has now experienced negative growth for the first time in recent years, and the strategic properties of medium and heavy rare earths continue to be highlighted. On the demand side, in the context of global energy structure optimization, relying on excellent energy-saving properties and mature preparation technology, the long-term positive trend of NdFeB permanent magnet applications has not changed. The growth in the scale of rare earth applications places equal emphasis on high-end upgrades, and the global pattern of tight balance of rare earths will continue. The company is backed by China Rare Earth Group and is expected to continue to benefit from the Group's high-quality rare earth industry assets and enter a fast track of rapid development.
Investment proposal: As the company's rare earth product production gradually increases, the integrated mining and metallurgy layout is gradually implemented, and performance is expected to continue to grow. Considering that rare earth product prices are affected by the terminal seasonal off-season in a phased manner in the short term, adjusted the company's operating income for 2023-2024 was 4.174 billion yuan and 4.556 billion yuan respectively (original forecast values of 4,502 million yuan and 5.124 million yuan), and Guimo's net profit was 488 million yuan and 611 million yuan (original forecast values of 533 million yuan, 656 million yuan). The forecast revenue for 2025 was increased by 4.783 billion yuan and net profit of the mother by 777 million yuan. The corresponding PE was 67.9, 54.3, and 42.7 times, maintaining the “recommended” rating.
Risk warning: (1) Terminal demand falls far short of expectations. (2) Project implementation progress fell short of expectations. (3) The progress of asset injection fell short of expectations.