Set up a joint venture to acquire a NdFeB magnet manufacturing company. The company announced on December 13 that the company used these two companies as a platform to acquire 100% of the shares of Rongcheng Hongxiushan Magnetic Industry Co., Ltd., a subsidiary of Youyan Rare Earth (Rongcheng) Co., Ltd. and Zhukou Group, with a total of 51% and 49% of shares, respectively, and used these two companies as a platform to acquire 100% of the shares of Rongcheng Hongxiushan Magnetic Co., Ltd., a subsidiary of Zhukou Group, and Qingdao Magnet Technology Co., Ltd. Considering that Hongxiushan (including Magnetco) had revenue of 225 million yuan and net profit of 12.32 million yuan in 2018, the assets acquired this time correspond to PE 4.7x in 2018. The target, Qingdao Magnet, is a leader in the production of high-performance magnetic sheets for electroacoustics. Advanced Materials has used this as an opportunity to lay out the downstream sintered NdFeB field. According to the official website, Qingdao Magnet has a complete production line from magnetic material blanks to deep processing of finished products. Its main products are sold to leading manufacturers of electroacoustic products, and it is a leading manufacturer of high-performance magnetic sheets for electroacoustics. The first acquisition of the company is to quickly enter the downstream sintered NdFeB field and complete the upstream and downstream layout of the industrial chain. The company's subsidiary Youyan Rare Earth has always been the leading producer of rare earth metal powders in China. It is the main supplier of raw materials for major domestic sintered NdFeB manufacturers and has strong technical advantages. The acquisition of sintered NdFeB manufacturers aims to extend the industrial chain downstream, and relies on the target company's mature technology and field management advantages in the field of magnetic materials production to achieve strong alliances. The second is to select the electroacoustic field with high potential for future development and develop a differentiated competitive strategy. The company first got involved in the field of sintered NdFeB production. On the one hand, it avoided the current competitive downstream production of magnetic materials for motors and entered the current gradual rise of electroacoustic magnets. On the other hand, it cooperated with leading companies in the current electroacoustic field. Relying on their current position in the industry and market development channels, they can effectively use their respective advantages and maintain the high added value of their products. In particular, the recent rapid rise of TWS headsets has led to rapid growth in electroacoustic magnetic materials, and the company's entry into the supply chain of leading companies is expected to benefit significantly. The upstream and downstream layout of the company's magnetic sector is beginning to take shape. Bonded and sintered magnetic materials go hand in hand. The high-end magnetic materials field is expected to become another performance growth point for the company in the future. Rare earth magnets are mainly divided into two fields: bonded NdFeB and sintered NdFeB. After the company's current acquisition of sintered NdFeB standards, it has formed a full industry chain layout from rare earth metals to rare earth magnets and downstream products. The company has previously successfully laid out a bonded NdFeB production line through the establishment of Guojia Magnetic Materials with Hubei Haopeng. The focus of this acquisition is the layout of the sintered NdFeB production line, which also provides technical support for the company's further penetration into the high-performance permanent magnet motor market. As future demand for magnetic materials continues to expand in the automotive and electronic consumer sectors, the company is expected to benefit significantly, and its performance is expected to continue to increase. The strategy focuses on the three major fields of electromagnetic optics, and future performance growth is worth looking forward to. The first is the electrical sector, which mainly relies on high-end metal target production business. The future is expected to benefit from the accelerated development of 5G and the increase in demand brought about by breakthroughs in chip technology such as domestic logic and storage. The second is the magnetic sector, targeting the field of NdFeB magnets with the greatest demand for rare earths. The upstream and downstream layout has now been completed. First, it will enter electroacoustic magnet manufacturing, and is expected to continue expanding to other downstream fields of magnetic materials in the future. The third is the optical sector. On the one hand, the company's products cover high-purity germanium single crystals, germanium compounds, and zinc sulfide, which are mainly used in fields such as solar cells and infrared optical window materials, which are expected to significantly benefit the growth in demand in the civil infrared field; on the other hand, they involve second-generation semiconductor gallium arsenide single crystals, which are currently mainly used in the field of optoelectronics. Give a “buy-A” investment rating, with a target price of 16 yuan for 6 months. The company has completed the upstream and downstream layout of the magnetic materials sector. The future is expected to benefit significantly from the demand for magnetic materials from automobiles and consumer electronics. Combined with the rapid growth of the company's high-end metal targets and optoelectronic materials business, the company's EPS for 2019 to 2021 is expected to be 0.12, 0.16, and 0.21, respectively. Considering that the company's current dynamic valuation of about 110x is at a relatively low level in history, which is also lower than that of similar main businesses, Jiang Feng Electronics (200x) and Ah Shichuang (220x), and that the company has strong technical barriers and large market prospects in the three major business fields, the company is given a dynamic price-earnings ratio of 100x in 2020, with a target price of 16 yuan for 6 months. Risk warning: 1) The release of the company's product capacity fell short of expectations; 2) Downstream industry demand fell short of expectations.