Incident: The company released its 2022 annual report. During the reporting period, it achieved revenue of 22.864 billion yuan, +42% year on year, net profit of 232 million yuan, +67% year on year, after deducting net profit of non-return mother of 247 million yuan, +72% year on year, which was below the median value of the previous performance forecast range. Among them, Q4 achieved revenue of 4.49 billion yuan in a single quarter, -9% year on year, net profit of 20 million yuan, +75% year on year, and net profit of 24 million yuan after deducting net profit of non-return mother (-07 million yuan for the same period last year).

Resource advantages are outstanding, and production and marketing reforms have achieved remarkable results. The company is the only legal rare earth mining owner in Guangdong Province. It owns 3 rare earth mining enterprises and controls more than 120,000 tons of medium and heavy rare earth resources; 2 tungsten mining enterprises have proven that they have 64,000 tons of tungsten ore resource reserves and rich long-term reserves. At the same time, the company's total annual separation capacity of medium and heavy rare earths reached 14,000 tons.

Furthermore, the participating company Dabaoshan Mine owns the largest copper and sulfur metal mine in South China. In 2022, production of rare earth minerals was 1,523 tons, +123.64% year on year, 3,681 tons of rare earth oxides, +12.33% year on year, and 1,413 tons of rare earth inclusions, -37.25% year on year.

Key projects are progressing smoothly, and the integrated layout is developing rapidly. (1) Xinfeng Company successfully obtained a mining license, adding 111,400 tons of southern ionic rare earth resource reserves; participating in the Dabaoshan Copper Polymetallic Mine Prospecting Exploration Project, adding about 45,000 tons of copper metal; Hongling Company has successfully implemented mixed reform work. (2) Fuyuan Company completed the relocation and technical upgrading of its 5,000 tons of medium and heavy rare earth ore separation production line, which processes 5,000 tons per year, and will build the largest green demonstration plant for medium to heavy rare earth separation in the country. (3) Shengyuan Company completed the first phase of construction of the 8000 t/a high-end magnetic material construction project, and was successfully put into trial production in January 2023.

Investment advice: As the main listed company of the national-level Guangdong Rare Earth Group, the company has significant strategic advantages. As the integrated layout enters a stage of rapid development, we expect the company's net profit to be 3.53/4.58/581 billion yuan in 2023-2025, EPS is 1.05/1.36/1.73 yuan respectively, and the corresponding PE is 38.32/29.48/23.27 times respectively. It is covered for the first time, giving a “recommended” rating.

Risk warning: The release of production capacity fell short of expectations; the sharp drop in rare earth prices exceeded expectations; downstream demand fell short of expectations.