The net profit of 20H1 was 76 million yuan, an increase of 5.09% over the same period last year.

According to the company's 2020 semi-annual report, 2020H1 achieved revenue of 288 million yuan, down 2.23% from the same period last year; the decrease in revenue from the same period last year was mainly due to the impact of COVID-19 's epidemic situation, and the company's sales revenue of automotive magnets decreased compared with the same period last year; the net profit of 20H1 was 76 million yuan, an increase of 5.09% over the same period last year, mainly due to the strengthening of cost control by the company, and the gross profit margin of some products increased over the same period last year. As the global leader of bonded NdFeB, we expect the sales of magnets for automobiles and energy-saving motors to increase steadily, while the sales volume and revenue share of samarium cobalt magnets and hot-pressed magnets are expected to further increase. We estimate that the EPS for 20-22 will be 0.48 EPS 0.51 shock 0.55 yuan respectively, maintaining the "overweight" rating.

The decline in demand for automotive magnets, actively open up other markets, and control the fluctuation of raw material prices affect the revenue of 20H1 bonded NdFeB magnets of 269 million yuan, down 3.13% from the same period last year, with a gross profit margin of 36.85%, an increase of 2.80pct over the same period last year. Due to the influence of COVID-19 's epidemic situation, the downstream demand of the company's automotive magnets declined year on year during the reporting period, resulting in a decline in magnetic material sales compared with the same period last year. In this regard, the company makes great efforts to open up the market of other products, in order to reduce the impact of the decline in sales revenue of automotive magnets on the company, and ensure the stability of the company's production and operation; at the same time, strengthen cost control, and increase the gross profit margin of some products compared with the same period last year. According to Baichuan information, the average price of 20H1 praseodymium oxide neodymium oxide / terbium oxide / dysprosium oxide is 28.19395.00x181.06 million yuan / ton, an increase of-7.22% 21.98% Universe 20.08% X 20H1 rare earth prices first slightly decreased and then increased; the company actively negotiated with upstream and downstream prices of raw materials and products to reduce the impact of rare earth price fluctuations on business.

Orders for new magnets fluctuate, and in the long run, capacity utilization is expected to further release 20H1's hot-pressed magnet revenue of 11 million yuan, an increase of 27.06% over the same period last year, with a gross profit margin of 46.64%; samarium cobalt magnet revenue of 8 million yuan, a decrease of 2.84% over the same period last year, and a gross profit margin of 39.72%. During the reporting period, the benefit of the samarium cobalt magnet project was 1.0352 million yuan, and that of the hot-pressed magnet project was 2.0982 million yuan. Samarium cobalt magnets are widely used in aerospace, military equipment and other fields because of their high magnetism, low temperature coefficient and corrosion resistance. Hot-pressed magnet can replace part of sintered magnet, which is mainly used in all kinds of high-efficiency and energy-saving motor fields, such as automobile EPS, power tools, servo motors and so on. The construction of samarium cobalt magnet and hot-pressed magnet project has been completed; the company is committed to reducing its production costs, and we believe that once the bottleneck of technological cost reduction is broken, capacity utilization is expected to be further released.

Global bonding NdFeB leader, the new product is expected to stabilize the volume, "increase" rating we maintain the original profit forecast, estimated revenue of 606max 653pm 712 million yuan in 20-22, return to the mother net profit of 1.55pm 165pm 177 million yuan. The average PE of 20-year Wind of rare earth permanent magnet enterprises is 69X. Considering the relatively limited application range of bonded NdFeB in rare earth permanent magnets, we give 40XPE according to the 20-year return net profit, corresponding to the target price of 19.20 yuan (the previous value is 17.27-18.22 yuan), "overweight" rating.

Risk tips: rare earth prices fluctuate sharply; automotive magnetic materials, new magnetic materials market expansion is not as expected.