Event: the company issued a public announcement: the company re-signed the "rare Earth concentrate supply contract" with Northern rare Earth, proposing that from July 1, 2022, the trading price of rare earth concentrate between the two sides will be adjusted to 37230 yuan / ton (dry quantity, REO=50%) without tax, and the total trading volume of rare earth concentrate will not exceed 230000 tons in 2022. The company's 2022Q3 realized a net profit of-1.17 billion yuan, down 215% from the same period last year.
Comments:
The steel business is a drag on performance. Due to the overall decline of the Q3 steel industry, the price gap between purchase and sale has narrowed, and the company's rare earth business is carried out in accordance with related party transactions, and the price and cost are relatively fixed, so the decline is due to the drag on the overall performance of iron and steel.
Demonstrate the determination to adjust prices, rare earth profits are expected to further increase. The company signed a related party transaction agreement with Northern rare Earth in June 2022, raising the price of rare earth concentrate to 39189 yuan / ton, but because the northern rare earth shareholders' meeting was not approved, the execution price was still 26887.2 yuan / ton signed in January; the resigned price is 37230 yuan / ton, a decline of only 1959 yuan / ton. If it can be implemented at the re-signed price, then the volume and price of the company's rare earth business will rise, and we estimate that the net profit of the rare earth business in 2022 is expected to grow by more than 180% compared with the same period last year.
The properties of rare earth resources have been further realized. The company and the northern rare earth parties have agreed that the trading price of rare earth concentrate will be determined once a quarter, but in the past, the actual price adjustment has been adjusted once a year, and in 2022, the price adjustment has been adjusted half a year, and the frequency has increased. As a leading attribute of rare earth resources, the company is gradually realizing. The Bayan Obo mine tailings reservoir owned by the company has a rare earth oxide reserve of about 13.82 million tons, ranking second in the world. Baiyun Obo Mine, owned by Baotou Steel Group, the controlling shareholder, is a world-famous treasure house of resources, with rare earth oxide reserves of 35 million tons, ranking first in the world.
Steel business: focus on the progress of demand recovery. The decline in real estate starts and repeated epidemics in various places have led to poor demand performance; falling steel prices and persistently high costs have led to a low average gross margin in the industry. The pull of the seasonal peak season of "Golden Nine and Silver Ten" is gradually weakening, and the current demand is mainly supported by the rush to work at the end of the year and rigid demand reserve; it is still necessary to continue to follow up the progress of steel downstream demand recovery.
Profit forecast and investment rating: we forecast that the company's income in 2022-2024 will be 8495Universe 91.5 billion yuan respectively, an increase of-1% 4% and 3% compared with the same period last year. According to the performance of Q3, we will adjust the company's 2022-2024 homed net profit from 100 million yuan in 20-30-40 to 0.53555 billion yuan in the year-on-year growth of-98% and 6635%, respectively, and the corresponding PE is 1624company2417x. Considering that the company is the leader in rare earth resources, the steel business is expected to pick up after steady growth, and the company also has fluorite, thorium and other resources that need to be revalued. So maintain the company's "buy" rating.
Risk tips: demand is lower than expected, raw material costs fluctuate, product prices fluctuate.
