Event: on March 27, the company released its annual report for 2019 and KuaiBao's first-quarter results for 20 years.
Main points of investment:
The company's performance is basically in line with expectations. In 2019, the company's operating income was 603 million yuan, up 0.62% from the same period last year; operating profit was 172 million yuan, down 5.79% from the same period last year; net profit was 147 million yuan, down 5.71% from the same period last year; net profit after deduction was 145 million yuan, down 7.04% from the same period last year The net cash flow generated by operating activities was 141 million yuan, an increase of 17.58% over the same period last year, and the basic earnings per share was 0.46 yuan. The profit distribution plan is to distribute a cash dividend of 3.50 yuan (including tax) for every 10 shares.
The company's 19-year performance is basically in line with expectations, in which the decline in net profit is mainly due to the decline in gross profit margin and the impact of exchange gains and losses. At present, the company's main products are bonded and hot-pressed NdFeB magnets, and samarium cobalt magnets.
The increase in volume led to the increase in revenue performance of bonded NdFeB, with a follow-up focus on automotive and energy-efficient motor magnets. The company's bonded NdFeB magnet is the company's dominant product, with revenue of 556 million yuan in 18 years, an increase of 11.52% over the same period last year, accounting for 92.76% of the company's revenue, accounting for 570 million yuan in 19 years, an increase of 2.50% over the same period last year, accounting for 94.49% of the company's revenue. In 2019, the company sold a total of 2030 tons of rare earth permanent magnets, an increase of 5.40% over the same period last year, indicating a slight decrease in the average product price, which is consistent with the tracking trend of the average price of products in the industry. As far as downstream applications are concerned, the company's bonded NdFeB magnets can be divided into four aspects: optical disc, hard disk, automobile and high-efficiency and energy-saving motor magnets. Specifically, due to technological progress, the demand for optical disc magnets is weak, but it accounts for a low proportion of the company's revenue; the demand for hard disk magnets is insufficient in the first half of the year. The downstream demand increment mainly lies in the magnets for automobiles and high-efficiency and energy-saving motors, such as 50-100 micro-special motors for each medium-to-high-grade and luxury car, in which the automobile is gradually developing in the direction of electrification and intelligence. as well as the national promotion of energy-saving motor products, the rise of market demand such as superimposed intelligent furniture, while bonded NdFeB has remarkable advantages in precision control, size miniaturization and energy saving. It is expected that automotive and energy-efficient motor magnets will be the main driving force of the company's performance growth.
The company's samarium cobalt and hot-pressed magnet project performance is lower than expected. In 2012, the company launched the project of samarium cobalt and hot-pressed magnets. After years of technological progress and market cultivation, both of them have a certain scale. In 2018, the revenue of hot-pressed magnets and samarium cobalt magnets was 24.52 million yuan and 18.83 million yuan respectively, an increase of 183% and 64% respectively over the same period last year, accounting for 7.24% of the company's revenue. In 19 years, the company's samarium cobalt and hot-pressed magnet projects achieved revenue of 1542 yuan and 15.77 million yuan, down 18.08% and 27.53% respectively from the same period last year, accounting for 5.51% of the company's revenue, and their performance was lower than expected.
In terms of downstream applications, samarium cobalt magnets have good high temperature characteristics and have significant advantages in instrumentation and other fields; hot-pressed magnets have certain cost advantages compared with sintered NdFeB due to the reduced use of heavy rare earths, which can partially replace their applications. but its process requirements are more stringent. Follow-up focus on its market development progress, with technological progress and customer accumulation, both are still worth looking forward to.
The price of rare earth raw materials in the upstream fluctuates in a narrow range. The main raw materials upstream of NdFeB magnetic products are neodymium, praseodymium, neodymium, etc., and the performance of NdFeB enterprises is highly positively related to it. The price of rare earths is stable in 2018, but due to the decline in economic growth at home and abroad, the growth rate of downstream demand is relatively slow; in 2019, the price of rare earths first fell and then rose, and then became stable, the economic growth at home and abroad continued to decline, and the growth of downstream demand was weak. At present, there is still great uncertainty in the global epidemic, which is expected to have an impact on downstream demand. Short-term downstream demand growth is generally weak, but rare earths are strategic resources. It is generally expected that the price of upstream rare earth raw materials will fluctuate in a narrow range.
The company's profitability has fallen and is expected to be flat for 20 years. In 2019, the company's sales gross profit margin was 34.31%, down 1.39% from the same period last year, including 34.14% in the fourth quarter, down 0.31% from 34.45% in the third quarter, mainly due to increased competition in the industry and changes in revenue structure. Specific to the subdivision of products: bonded NdFeB is 34.41%, down 1.40 percentage points from the same period last year. The company pays attention to R & D investment and technological innovation for a long time, and has independently implemented 22 R & D projects in 19 years, and some products have been put into mass production, and the added value of new products is relatively high. With the warming of industry policies, judging by future price trends, and the company's long-term continuous development of new products, it is expected that the company's overall profitability will be basically the same for 20 years.
The results in the first quarter of 20 fell short of expectations. The company expects net profit in the first quarter of 2020 to be 2600-29.7 million yuan, down 20-30% from the same period last year. Due to the need for epidemic prevention and control, the extension of the Spring Festival holiday and the incomplete return to work of downstream customers, the company's new orders decreased in the first quarter compared with the same period last year. The company has a significant position in the bonded NdFeB industry. With the increase in the domestic resumption rate, it is expected that the company's orders will resume growth.
Maintain the company's "overweight" investment rating. It is predicted that the earnings per share of the company from 2020 to 2021 are 0.50 yuan and 0.56 yuan respectively, and the corresponding PE is 29.1 times and 26.0 times respectively according to the closing price of 14.53 yuan on March 27th. At present, the valuation is reasonable relative to the level of the industry, maintaining "increasing holdings".
Investment rating.
Risk tips: upstream raw material prices fluctuate sharply; the economic downturn exceeds expectations; industry competition intensifies; and the progress of new energy vehicles is lower than expected.