1H19 results are consistent with forecasts Galaxy Magnet announced 1H19 results: operating income of 290 million yuan, down 2.7% year on year; net profit of 720.5 million yuan, corresponding to profit per share of 0.22 yuan, down 8.5% year on year, in line with performance forecasts; net profit after deduction of 72.83 million yuan, down 7.2% year on year. 1H19's profit declined mainly due to a significant year-on-year decline in sales of magnets for hard drives, and a narrowing in the gross margin of some products. The 2Q19 company's revenue was 140 million yuan, -8.9% yoy /-5.1% yoy, net profit of 34.9 million yuan, -19% y/y -6% yoy. Comment: 1) The price of rare earths declined year over year. The average price of 1H19 domestic praseodymium oxide was 305,000 yuan/ton, down 9% year on year; 2Q19 average price -8% year on year, basically the same as month on month. As of August 27, the domestic price of praseodymium oxide rose 19% from the low in late April to 311,000 yuan/ton. 2) The company's 1H19 gross margin was -1.2ppt to 34.5% year-on-year. 3) Interest income is rising. The company's 1H19 financial expenses decreased by 7.37 million yuan year on year, of which interest income increased by 14x/9.41 million yuan to 1.09 million yuan year on year. 4) 1H19 assets+credit impairment losses decreased year-on-year by 1.1x/1.82 million yuan to -130,000 yuan, mainly due to a decrease in bad debt losses. 5) 1H19 investment income fell 67% /9.31 million yuan year on year to 4.56 million yuan. 6) 1H19 operating cash flow increased 6.2% year on year to 51.17 million yuan. The trend is that rare earth prices are expected to remain stable. Since May, Myanmar's rare earth imports have been restricted, and the domestic rare earth supply has been marginal tightened, supporting rare earth prices. Domestic rare earth magnetic materials companies mainly adopt a fixed gross margin pricing strategy, and we believe it is expected to benefit from a central rise in rare earth prices. Profit Forecast and Valuation We maintain our 2019/2020 profit forecast of $0.44/0.44. The company's current stock price corresponds to the net market ratio of 5.8 times /5.5 times in 2019/2020. Maintaining a neutral rating and a target price of 15.00 yuan, corresponding to 3.9 times the 2019 net market ratio and 3.7 times the 2020 net market ratio, there is a 34% downside compared to the current stock price. Demand for risky magnetic materials fell short of expectations, and rare earth prices fell beyond expectations