Due to the demand for rare earth magnetic materials and other products, the performance has declined slightly. 2023H1 realized revenue of 1.41 billion yuan (yoy-1.7%), net profit of 170 million yuan (yoy-13.9%) and non-return net profit of 140 million yuan (yoy-15.7%). The company's performance decline is mainly due to the company's rare earth permanent magnets, fluorenone and other products affected by market demand, performance decline compared with the same period last year. 2023Q2 realized revenue of 800 million yuan (yoy+9.0%), net profit of 110 million yuan (yoy-16.2%) and non-return net profit of 90 million yuan (yoy-20.7%).

The business of testing and metallurgical equipment continues to grow at a high level. From a product point of view, the company inspection performance is eye-catching, 2023H1 achieved revenue of 320 million yuan (yoy+30.4%); metallurgy, mining, mechanical and electrical engineering special equipment revenue of 100 million yuan (yoy+62.7%); industrial raw materials revenue of 370 million yuan (yoy-28.3%); electronic components revenue of 330 million yuan (yoy-0.4%); revenue of metal products of 230 million yuan (yoy+11.0%).

Steady improvement in profitability and proper cost control. 2023H1's comprehensive gross margin is 26.1 per cent (yoy+2.5pct), compared with a net margin of 13.9 per cent (yoy-1.2pct) for the same period. In terms of gross profit margin, the testing business increased significantly, reaching 57.9% (yoy+1.6pct); industrial raw materials / electronic components achieved 14.2% yoy-3.6pct/+3.4pct; and metal products achieved a gross margin of 21.5% (yoy-1.1pct). The 2023H1 sales expense rate of 2.4% (+ 0.7pct) is due to a slight increase in sales of major products, accelerated market development of testing business and increased sales staff; the management expense rate is 5.6% (+ 0.3pct); the financial expense rate is-0.2% (- 0.3pct), mainly due to the increase in interest income in the current period; the R & D expense rate is 5.0% (- 0.6pct). The net operating cash flow was-120 million yuan, down 500.6% from the same period last year, mainly due to the decrease in cash rebates received and the decrease in discounted bank bills in the current period.

Baowu is in charge, and the magnetic material business hopes to benefit from the core. In December 2022, Sinosteel was officially incorporated into Baowu as a whole, and Baowu indirectly through the holding company of Sinosteel. Baowu is the world's largest iron and steel enterprise. As the magnetic material business platform of Baowu Group, it has 50, 000 tons of electronic manganese oxide / 15000 tons of battery-grade manganese oxide / 20, 000 tons of permanent magnet ferrite devices / 8000 tons of soft magnetic devices and powders / 2000 tons of rare earth permanent magnet devices / 70, 000 tons of metal products. It is expected to be deeply integrated into Baowu's "one base and five yuan" business plan. Share excellent operating mechanism, management means, scientific and technological achievements and funds, and benefit from the background of major shareholders to obtain the upstream resource endowment, become a first-line magnetic material supplier, the internal integration process is worth looking forward to.

Profit forecast: from 2023 to 2025, the estimated net profit of homing is 41,000,000 yuan, corresponding to EPS 0.54 million, and PE corresponding to 1.65, 13.2, 10.5x. The company testing business incentive system is good, magnetic materials business to enjoy the growth of the industry, the future is expected to maintain high revenue, profit growth, maintain the "buy" rating.

Risk tips: magnetic materials downstream demand growth is lower than expected, testing business expansion is not as expected, raw material price fluctuation risk and so on.