Core views

Dragon Magnetic Technology's three major businesses, permanent magnets, soft magnets, and micro inversion, are all developed. Permanent magnets: China's leading manufacturer of high-performance permanent magnet ferrite wet pressure magnetic tiles. It is expected to reach a production capacity of 60,000 tons/year by 2024, and the scale will surpass that of the current global leader TDK in Japan. Soft magnetism: Production of 4,000 tons/year of metal magnetic powder cores and 3,000 tons/year of soft magnetic ferrite has already been put into production. The second phase of the inductor project is expected to be completed in the second half of 2023 and will contribute to performance in 2024; the acquisition of Envo's layout is slightly reversed, the layout of the entire industry chain has been improved, and a new profit growth pole has been established. The bottom of the company's performance has been established. It will improve month-on-month in the future, and the performance is expected to increase rapidly.

occurrences

The semi-annual results were released, and the net profit of the parent company fell by 38.44%

On August 25, Longci Technology released its semi-annual performance report, stating that revenue for the first half of 2023 was about 517 million yuan, up 15.54% year on year; net profit attributable to shareholders of listed companies was about 34.95 million yuan, a year-on-year decrease of 38.44%; net profit attributable to shareholders other than parent company shareholders after deducting 3.01 million yuan, a year-on-year decrease of 33.06%; basic earnings per share were 0.29 yuan, a year-on-year decrease of 52.42%.

Brief review

Looking at the quarterly basis, the bottom of the performance is already established. The company's first-quarter revenue was 259 million yuan, net profit was 21.68 million yuan, net profit was 15.3 million yuan, and main business gross margin was 27. %; The company's second-quarter revenue was 258 million yuan, -0.7% month-on-month, net profit of 18.92 million yuan, -12.7% month-on-month, net profit of 1.64 million yuan, +28.4% month-on-month, and gross profit margin of main business of 24.3%.

As the company continues to release permanent magnet products, increase production and sales of soft magnet production lines, and continue to grow slightly negative business, the company's subsequent performance may improve from quarter to quarter, and the bottom of performance has already appeared.

Seen by sector, permanent magnets still contribute major performance, and have strong profitability. The company's wet ferrite tile business had revenue, operating costs, and gross profit of 3.53/2.48/104 million yuan in the first half of the year, accounting for 68.2%/64.7%/78.3%, respectively, and gross profit margin of 29.6%, contributing to the main source of performance.

The revenue/operating costs/gross profit/net profit of the micro-inverse business for the first half of the year was 0.62/0.41/0.21/0.21/ 0.13 billion yuan, accounting for 11.9%/10.7%/15.5%/31.0%, respectively. The gross profit margin was 33.5%, and the net interest rate was 20.5%. Microinverse profitability is strong, and future business share will gradually increase. The soft magnetic business is still in the industry investment period and has not yet generated positive profits. The subsidiary of Longji Metal, which is mainly responsible for the soft magnetic business, had revenue of 18.41 million yuan and losses of 14.49 million yuan in the first quarter, revenue of 2.05 million yuan and losses of 11.99 million yuan in the first half of the year. It has improved quarterly. The soft magnet production line is in the production capacity rise, customer expansion stage, production and sales are improving, and a reversal of losses can be expected.

The ballast stone of the permanent magnet business, short-term fluctuations do not change the leading goal. The company is a leading producer of high-performance permanent magnet ferrite wet pressure magnetic tiles in China. Production capacity is expanding at a rate of about 10,000 tons each year. At the end of 2021 and 2022, production capacity reached 34,000 tons/year respectively. Currently, it has built a production capacity of nearly 45,000 tons/year, ranking second in the country and the top five in the world. It is expected to reach 50,000 tons/year by the end of 2023, and 60,000 tons/year by 2024, surpassing the current leading global enterprise TDK. At the same time, the company is actively introducing technical personnel, and the new production capacity is at an advanced level in the industry in terms of production line layout, technical routes, hardware equipment, and staffing. Downstream ferrite permanent magnet wet compression tiles are micromotors, mainly used in automobiles and home appliances. With the continuous improvement of automotive automation, intelligence, and comfort requirements, automobile motors still maintain an average annual growth rate of about 15%, driving the increase in demand for magnetic materials.

The integration of soft magnetism and inductance is progressing, gradually moving on the right track. The company has laid out an integrated soft magnetic-inductance business. It has built a production capacity of 4,000 tons/year for metal magnetic powder cores and 3,000 tons/year for soft magnetic ferrite cores. The planned production capacity is 5,000 tons/year for metal magnetic powder cores, and 6,000 tons/year for soft ferrite magnets. The first phase of the photovoltaic and automotive inductor projects in the inductor business has entered the small-batch production stage. The second phase of the inductor project completed the capping of the main structure in March 2023. It is expected to be completed in the second half of 2023, and will contribute to performance in the first quarter of 2024. Soft magnetic and inductive products are expected to collaborate with permanent magnet products, accelerate the soft magnetic layout and shipment upgrade in the automotive sector, and at the same time introduce Envo New Energy's slightly inverted industrial chain to improve the integrated layout of the industrial chain.

Deploy micro inverters, deepen industrial chain integration, and build new profit growth poles. The company completed the merger and acquisition of Envo New Energy, held 51.43% of its shares, and merged in 2023. At this point, the company completed the entire industry chain layout of soft magnetic powders - magnetic powder cores - inductor devices - micro inverters. Envo New Energy's Yongkang production base has a production capacity of 300,000 units/year. A new production base in Shanghai is being built. The scale is expected to reach 600,000 units/year by the end of the year. The company's micro inverse products began entering the market with one drag one and one drop two products, and one drop four products. In 2023, it will be based on the European market, relying on the perfect marketing network established overseas by the company's permanent magnet business, expand micro-inverse markets such as Latin America, North America, and Southeast Asia, achieve rapid growth in shipments throughout the year, and establish a new profit growth pole.

Profit forecast and investment suggestions: The company's revenue for 2023-2025 is expected to be 1,37/19.3/2.56 billion yuan, and net profit to parent is 1.21/196/292 million yuan, corresponding PE of 25/16/10 times. As a producer of scarce high-end permanent magnet materials, the company's scale and technical level will be matched against the world's best. At the same time, the company has entered the field of soft magnets and new energy components where demand is growing at a higher rate. After laying out in the field of micro inverters, the layout of the new energy industry chain has been improved, and the product synergy effect is remarkable. The performance has high growth potential, and a “buy” rating is given.

Risk warning: 1. The company's production capacity of ferrite wet compressed magnetic tiles is currently 45,000 tons/year, and the future plan is 60,000 tons/year. The permanent magnet production capacity is in a period of rapid expansion, with production expansion falling short of expectations or production release falling short of expectations or affecting the company's performance; 2. Upstream magnetic materials are iron red, etc., fluctuations in raw material prices will affect the company's profitability, and raw material prices will rise too quickly or lose profits; 3. Soft magnetic products extend downstream to inductance, and products require certification from downstream photovoltaic/new energy vehicle manufacturers. Volume; 4. Downstream products, photovoltaics, new energy vehicles, etc. It is closely related. If policy changes affect terminal demand, they may affect the company's performance release; 5. The market for micro-inverse products is mainly overseas. Overseas policies have changed, and there is a possibility that market expansion will fall short of expectations.