Events:

On July 17, 2023, the company released its semi-annual performance report for 2023, which is expected to achieve a net profit of 95 million to 105 million yuan in 2023, a decrease of 82.1165 million yuan to 92.1165 million yuan compared with the same period last year, and a decrease of 43.89% to 49.23% compared with the same period last year. It is estimated that the net profit of deducting non-return in 2023 is 42.72 million yuan to 52.72 million yuan, a decrease of 140.6885 million yuan to 150.6885 million yuan compared with the same period last year, and a decrease of 72.74% to 77.91% compared with the same period last year.

The decline in rare earth prices is the main reason for the decline in performance.

According to the China rare Earth Industry Association, the average price of yttrium-rich europium ores in the first half of 2023 was 248943 yuan / ton, compared with 379098 yuan / ton in the same period last year, down 34.3% from the same period last year. The continuous decline in rare earth prices since the beginning of the year has led to a decrease in gross margins of the company's products and an increase in the provision for falling prices of some inventories, resulting in a year-on-year decline in profits.

The company has strong control over rare earth resources, reducing cost, increasing efficiency and increasing speed.

The company owns all three rare earth mining certificates in Guangdong Province. The work of expanding the boundary between Yuanrenju rare Earth Mine in Pingping and Wufeng rare Earth Mine in Dapu has been completed, with a full production capacity of 2700 tons; Xinfeng Zuokeng rare Earth Mine obtained a mining license in 2022, with an additional reserve of 111000 tons and a designed production capacity of 3000 tons / year. After it is put into production in 2024, the company's total rare earth production capacity will reach 5700 tons / year. The company will continue to strengthen operation and management, strengthen cost control, strive to improve quality and efficiency, and minimize the impact of adverse factors on business performance.

Earnings forecast, valuation and rating

We estimate that the company's income in 2023-25 will be 281.9 yuan 319.9 / 36.32 billion yuan respectively, the corresponding growth rate will be 23.3%, 13.5%, 13.5%, 4.47 and 585 million yuan, respectively, and the corresponding growth rate will be-1.2%, 94.6%, 31.1%, 1.74 yuan per share and 36.1%, respectively, and the 3-year CAGR will be 36.1%. We give the company 4 times PB with a target price of 43.60 yuan and maintain a "buy" rating.

Risk hints: the supply of rare earths is higher than expected; the new demand downstream is lower than expected; and the project is not as expected.