3Q20 performance is in line with our expectations
The company announced 1-3Q20 results: operating income 440 million yuan, year-on-year-1.4%; return to the mother net profit of 110 million yuan, year-on-year-0.6%, the performance is in line with our expectations. Among them, the single-quarter operating income of 3Q20 is 150 million yuan, year-on-year / month-on-quarter + 0.4% Maxime 0.8%, return to the mother net profit 34.17 million yuan, year-on-year / month-on-month-11.1% maul 16.4%.
3Q20's gross profit margin is 35.6%, year-on-year / month-on-month + 1.1/-4.2ppt, which is the main reason for the decline in performance. 3Q20 company period expense rate of 8.5%, year-on-year / month-on-month + 4.7/+2.1ppt. Sales / management / R & D / financial expense rate 3.0% Universe 2.5% Universe 4.0% Universe 1.0%, year-on-year + 0.2/-0.7/+0.5/+4.6ppt.
The structure of assets and liabilities continued to be sound, and the outflow of investment activities increased. As of 3Q20, the asset-liability ratio is only 4.7%, and the asset-liability structure is sound. In terms of cash flow, the net inflow of 1-3Q20 operating activities was 120 million yuan, + 9.6% compared with the same period last year; the net outflow of investment activities was 70 million yuan, with an increase of 250 million yuan over the same period last year, mainly due to the decrease in maturity and redemption of wealth management products and the increase in investment; the net cash flow of fund-raising activities was flat compared with the same period last year.
Trend of development
The average export price of 3Q20 NdFeB magnets fell, dragging down the company's gross profit margin. The company's main customers are world-renowned enterprises in the downstream field. According to the General Administration of Customs, the average export price of 3Q20 NdFeB alloy quick-solidified permanent magnet in China is 22.50 US dollars / kg, which is-20.8% higher than that in the second quarter, dragging down the company's gross profit margin.
The new project is launched to expand the production capacity of hot-pressed NdFeB and samarium cobalt. In July 2020, Silver Magnetic Materials, a wholly owned subsidiary, launched the infrastructure construction of the "High performance rare Earth permanent Magnet Materials Project", which is the main reason why the company's projects under construction increased by 57% at the end of the third quarter compared with the beginning of the year. We believe that the future commissioning of the project is expected to expand the company's annual production capacity of 1000 / 500 tons of hot-pressed NdFeB magnets / samarium cobalt magnets, creating a profit growth point for the company.
The downstream industry continues to pick up, and the bonded NdFeB magnet business is expected to benefit. The company's main products are bonded NdFeB magnets, which are mainly used in micro-motors and sensors of medium and high-grade cars.
By September 2020, China's automobile production had increased for six consecutive months compared with the same period last year, while the growth rate of new energy vehicle production in September was as high as 51.1%, the highest in nearly three years. We believe that with the recovery of the automotive industry, NdFeB prices are expected to be boosted.
Profit forecast and valuation
Keep the profit forecast for 2020 and 2021 unchanged. The current share price corresponds to the 2020 48.3x/39.5x price-to-earnings ratio of 2021. Maintain the neutral rating, but due to the higher valuation level, we raised our target price by 27.6% to 23.10 yuan, corresponding to the 2020max 2021 price-to-earnings ratio of 53.0x/43.3x, which has 9.8% upside compared to the current share price.
Risk.
The progress of the project is not as expected, the price of rare earth raw materials fluctuates, and the price of export products fluctuates.
