Medium and heavy rare earth faucet with excellent performance elasticity
According to the company's annual report, the operating income reached 3.428 billion yuan in 2015, an increase of 30.77% over the same period last year, and the net profit attributed to the owner of the parent company was-274.4488 million yuan. In the same period last year, the net profit attributed to the owner of the parent company was 18.6958 million yuan, a decrease of 293.1446 million yuan compared with the same period last year. The loss in 2015 was mainly due to a sharp drop in the prices of tungsten and rare earths, a drop in gross profit margin, a sharp increase in asset impairment losses, and a sharp drop in government subsidies compared with the same period last year.
Production of major products such as rare earth oxides fell slightly in 2015, according to the company's annual report. In 2015, a total of 3822 tons of rare earth oxides were produced, down 10.73 percent from the same period last year, of which: lanthanum oxide production was 760 tons, down 12.65 percent from the same period last year; cerium oxide production was 325 tons, down 20.83 percent from the same period last year; and yttrium oxide production was 704 tons, down 36.12 percent from the same period last year.
Tungsten concentrate sales have declined significantly, inventories have risen sharply, and rare earth sales have been stable. In 2015, the company's tungsten concentrate sales were only 15 tons, down 98.91% from the same period last year, while inventory increased by 479.03%. In addition, the company's rare earth mine inventory rose 6.99%, rare earth oxide inventory rose 14.55%.
The IPO is carried out in an orderly manner, and the major shareholders and employees' stock ownership plan shows confidence. Recently, the company plans to issue no more than 42.8 million shares to specific targets at 31.68 yuan per share, raising 1.356 billion yuan for Dapu Xinchengji mine expansion (175 million yuan), Hongling mining exploration (27.37 million yuan), R & D base construction (153 million yuan) and repayment of bank loans (1 billion yuan). The major shareholders of this additional offering subscribe for 452 million yuan, and the employee stock ownership plan does not exceed 43.76 million yuan.
The curtain on the collection and storage of rare earths has begun, and prices are expected to enter a moderate upward channel. On March 30, the NDRC organized the mobilization meeting of commercial reserves of rare earth enterprises to launch the commercial storage. The purchase and storage and the subsequent implementation of the supply-side reform policy are expected to make the price of rare earths, which has fallen to the bottom of history, into a moderate rising channel.
Investment advice: buy-An investment rating, 6-month target price of 55 yuan, equivalent to 2017 dynamic price-to-earnings ratio 322xPE. We expect the company's revenue to grow by 60.86%,-15.82% and 17.52% respectively from 2016 to 2018, and net profit to grow by 105.54%, 154.47% and 195.91% respectively, and the rare earth separation quota and inventory / market capitalization rank first in A shares. It is the leader of medium and heavy rare earths with the best performance elasticity.
Risk hints: 1) the collection and deposit policy is lower than expected / exceeding expectations; 2) demand remains low.
