2022 Report & 2023Q1 Review: New materials+testing of two-wheel drive, the company's profits shine. Performance summary: In 2022, the company achieved revenue of 2.76 billion yuan (+5.7% year-on-year); achieved net profit of 399 million yuan (+80.8% year-on-year); net profit returned to the mother after deduction was 337 million yuan (+94.6% year-on-year), and the corresponding EPS was 0.52 yuan. The company plans to distribute a cash dividend of 2.41 yuan for every 10 shares (dividend rate 2.55% 6). The 2023Q1 company achieved revenue of 607 million yuan (-12.7% YoY, -10.9% YoY), and Guimu's net profit was 56.14 million yuan (-8.53% YoY, 49.1% YoY); Revenue from the new materials+testing business progressed steadily: In 2022, the company responded positively to the triple pressure of demand contraction, supply shocks, and weakening expectations, and overall revenue performance progressed steadily. Looking at revenue by product, ① industrial raw materials (mainly manganese tetroxide, etc.) achieved revenue of 853 million yuan (-10.6% YoY) and sales volume of 45,300 tons (9.9% YoY), mainly affected by the macroeconomic downturn. Demand for soft magnetic ferrite products in the downstream automotive, home appliances and other terminal sectors was relatively weak, which affected the demand for electronics-grade manganese tetroxide raw materials, but downstream manufacturers of lithium manganate and lithium manganese-ferrophosphate manufacturers still achieved good demand for battery-grade manganese tetroxide raw materials; ② electronic components achieved revenue of 658 million yuan (658 million yuan) +10.4% compared to the same period), sales volume 14,200 tons (same as Compared to 2.2% 6), mainly due to the fact that the unit price of NdFeB permanent magnet products increased a lot due to the sharp rise in the prices of rare earth raw materials, and the sharp rise in product prices led to overall revenue growth; ③ Metal products achieved revenue of 416 million yuan (-4.8% 6), with sales volume of 34,200 tons (-5.2% YoY). Slight fluctuations were mainly affected by macroeconomic pressure; @检验检测业务实现营收5 .68 billion yuan (+26.4% 6). The rapid increase in revenue was mainly due to the company's continuous expansion of testing projects and service areas, while infrastructure, environment, metal products and other fields Testing demand is improving;

Investment income helped achieve a high increase in performance: the company's gross margin reached 23.7% (+1.0pct year on year) and net interest rate reached 15.5% (+6.2 pct year on year) in 2022. The increase in gross margin was mainly due to the sharp increase in the profitability of manganese tetroxide products and the good development trend of the inspection and testing business; the sharp increase in net interest rate was mainly due to a sharp increase of 208% year-on-year to 91.96 million yuan in the shareholding company Tongling Nayuan (the company holds 27.12% of the company's shares). The reason is that Tongling Nayuan's iron phosphate products were driven by terminal demand and production and sales were booming. The company's gross margin for 2022/Q4 was 21.5% 6 (4.9pct year over year). We speculate that the reason was structural changes in the business due to delays in revenue confirmation from the testing business with high gross margins. Looking at profitability by product, ① the gross margin of industrial raw materials was 14.8%, and the year-on-year increase of 3.99 pct was mainly due to strong production and sales of battery-grade manganese tetroxide products with high added value, and the optimized crystal production structure; ② The gross margin of electronic components was 10.4%, and the year-on-year decline of 6.46 pct was mainly due to the sharp rise in the cost of rare earth raw materials for rare earth permanent magnet components and the weakening of demand for permanent magnet ferrite devices due to macroeconomic downturn; ③ the gross margin of metal products was 21.0%, and the year-on-year decline of 6.83pc was mainly affected by macroeconomic disturbances; @检测业务毛利率为56 .6%, a sharp increase of 7.11pct was mainly due to strong demand for testing services in infrastructure, metal products and other fields at home and abroad. While expanding the scope of business, scale effects were evident, and the company continues to actively explore incremental markets such as the environment and electronic inspection;

Investment earnings declined in 2023Q1, and subsequent profit disturbances were limited: 2023Q1 net profit fluctuated greatly from month to month, mainly due to the influence of seasonal factors in the company's business and the month-on-month decline in investment income. Net investment income in 2023Q1 fell sharply by 84.3% month-on-month to 10.13 million yuan. The reason was that the profit of the participating company Tongling Nayuan in the first quarter was affected by price cuts for iron phosphate products, and that the company transferred some of its shares in Guizhou Jinrui in 2022 to confirm its investment income in the current period. The price of iron phosphate products has gradually returned to 2021 levels after experiencing high shocks in 2022. We believe that Tongling Nayuan's profit may stabilize in the future. At the same time, under Tongling Nayuan's price-to-volume strategy, the company's subsequent investment income is expected to rise steadily;

Production capacity expansion helps growth across fields: The company plans to expand production for various business lines from 2022 to 2025, including ① battery-grade manganese tetroxide increased from 5,000 tons to 25,000 tons; ② permanent magnet ferrite devices increased from 20,000 tons to 40,000 tons; ③ soft magnetic ferrite devices increased from 5,000 tons to 20,000 tons; @稀土永磁器件由2000吨增至1万吨; ⑤ Metal products increased from 70,000 tons to 100,000 tons. By the end of 2022, ① the “New Metal Product Inspection and Inspection Technology Service Project” has been completed, and the inspection is expected to be completed by the end of May 2023; ② The planned production capacity of 10,000 tons of high-performance soft magnetic ferrite materials and devices per year is being prepared in the early stages of project construction; ③ The “Intelligent Inspection and Inspection Information Construction Project” has begun. It is expected that the intelligent informatization construction of the company will be completed by the end of 2023, and the market share of the company's inspection business is expected to increase further in the future. Furthermore, in terms of battery-grade manganese tetroxide, the company plans to complete the next 10,000 tons of additional production expansion plan in 2023Q3 on the basis of completing the 10,000 ton production capacity construction in 2022. The expansion of production capacity in multiple business lines will help the company achieve cross-product and cross-field growth;

Baowu joined China Steel to deepen reform and collaborative development: According to the company's announcement in December 2022, Baowu Group and China Steel Group carried out a restructuring. China Steel Group was transferred as a whole to China's Baowu. After the completion of this transfer, China Baowu will indirectly control 32.85% of China Steel Tianyuan's shares through China Steel Group and achieve control over the company. Baowu is the world's largest steel group. Based on the “one base, five yuan” industrial collaborative development concept, its entry is expected to further deepen China Steel Group's internal reforms and improve production and operation conditions. At the same time, Baowu, as the world's largest steel company, is expected to provide the company with sufficient iron-red raw materials to produce permanent magnet ferrite. The company is expected to form synergies with Baowu in terms of industrial resources and management mechanisms, thereby continuing to benefit from accelerated growth;

Investment advice: As the world's main manufacturer of high-purity manganese tetroxide, the company is an authoritative inspection and testing agency for metal products in China. In addition, the future increase in the inspection and testing business of leading permanent magnetic component suppliers and the combined production capacity of various materials businesses are expected to help the company increase the market share of leading companies in the segment and continue to boost performance release. We expect the company to achieve operating income of 383/ 464/5.62 billion yuan respectively from 2023 to 2025, an increase of 38.5%/21.4%/21.0% over the previous year, and the net profit attributable to the mother was 43/55/ 710 million yuan respectively, up 10.2%/27.4%/29.9% year on year, corresponding to PE 16.7X/13.1X/10.1X. Maintain a “buy” rating.

Risk warning: Prices of raw materials fluctuate greatly, production expansion project progress falls short of expectations, downstream demand falls short of expectations, etc.