First, deep ploughing industry, welcome to accelerate growth

The company was founded in 2000, has a strong technology accumulation, and formed a relatively complete industrial chain system: 1) further cooperation with the upstream, the company and China rare earth (formerly Minmetals rare earth) joint venture to establish Jianghua Zhenghai Minmetals New Materials Co., Ltd., the existing high-performance NdFeB alloy sheet production capacity of 6000 tons, to achieve a stable supply of raw materials 2) more importantly, since 2021, the demand for high-performance sintered NdFeB in downstream applications has increased vigorously, and the company has seized the market opportunity to actively expand production: the current NdFeB production capacity is 18000 tons (10000 tons in east-west plant area + 8000 tons in Fuhai plant area). It is estimated that the production capacity of Nantong base will reach 36000 tons when it is completed.

II. High-performance NdFeB industry: a continuous high boom of remodeling

1) sustained high growth: driven by downstream applications such as new energy and energy-saving motors, the demand for high-performance NdFeB is high, with a compound growth rate of nearly 20% in 20-25 years. Specifically, in the field of new energy vehicles, the compound growth rate in 20-25 years is more than 35%; in the field of energy conservation, according to the latest motor efficiency plan, the demand for NdFeB magnetic materials in 23 is expected to reach more than 15000 tons, and the compound growth rate in 20-25 years is higher than 50%. 2) sustained high profits: NdFeB supply is restricted by upstream rare earth resources, and the tight balance between rare earth supply and demand is expected to be maintained for a long time.

The pricing model between a certain gross profit margin and processing fees and the pattern that demand falls short of supply will push the profitability of NdFeB enterprises to a new level: the price of NdFeB rose from 130,000 yuan / ton at the beginning of 2021 to 340,000 yuan / ton, an increase of 16.2%. The profitability of the industry has expanded from 20,000 yuan per ton to 30,000 yuan to 50,000 yuan (we are characterized by the price difference between N35 NdFeB and praseodymium neodymium oxide and other raw materials).

3) the industrial pattern is expected to continue to be reshaped. Due to the higher requirements for capital, technology, production capacity and the improvement of the price center of rare earths upstream, the industrial pattern of high-performance NdFeB is expected to be reshaped: 1) the operation of small and medium-sized enterprises is difficult, or withdraw or be merged, when the industry reshuffle is carried out; 2) the head enterprises accelerate production expansion, the market share increases rapidly, and the industry "Matthew effect" is further intensified.

Third, capacity expansion + product structure optimization, the company has entered a period of rapid growth to speed up capacity expansion. The company currently has three NdFeB permanent magnet production bases in Yantai East-West Plant, Yantai Fuhai Plant and Nantong, Jiangsu Province. According to the convertible bond announcement, the company currently has a NdFeB production capacity of 18000 tons (the upgrading project of the East-West and Fuhai plant will increase the production capacity by 2000 tons, which will be increased to 18000 tons by the end of 22 after completion). The planned production capacity of the Nantong base is 18000 tons, which is expected to reach 5000 tons in 2023 and 1000 tons in the first half of 2024. when it is fully completed in the future, the total capacity will reach 36000 tons, which is expected to increase by 100% compared with the end of 2022.

The product structure has been continuously improved and the application field of new energy products has been continuously expanded. 2022H1 accounts for 43% of revenue in the field of new energy vehicles, and the current application field of new energy vehicles has become the main application field of the company. With the continuous increase in the volume of the new energy vehicle industry, the company's product structure will continue to be optimized and will further enhance the company's profitability.

IV. Profitability and valuation

Assuming that the company's sales of NdFeB permanent magnets in 22-23-24 are 15500 20000x28000 tons, and the selling prices of NdFeB blanks are respectively 10,000 yuan in 37-36-37; it is estimated that the total annual revenue of the company in 22-23-24 is 73.21 million yuan, an increase of 72%, 27%, 44% and a year-on-year increase of 72%, 27%, 44%, respectively, and the net profit of returning to the mother is respectively 405, 596, 000,000 yuan, an increase of 53%, 47%, and 50%. The current share price corresponds to a 2022 PE 2023 PE valuation of 2024. In addition, the company's new energy vehicle motor drive system business is expected to expand this year, is expected to achieve a turnaround. In summary, maintain the "buy" rating.

Risk tips: raw material cost fluctuations, capacity release is not as expected, the industry boom is not as expected, and the public information used in the research report may lag behind or not updated in a timely manner.