Matters:
The company released its semi-annual report for 2023. In the first half of 2023, it achieved total operating income of 2.127 billion yuan (-3.36%); net profit of 45.31 million yuan (-85.13% YoY); net profit of 43.3 million yuan after deducting non-return net profit of 43.3 million yuan (-85.58% YoY). Among them, in the second quarter, the company achieved revenue of 646 million yuan (-34.93% YoY); net profit of 25.84 million yuan (-81.08% YoY); net profit of 24.19 million yuan after deducting non-return net profit of RMB 24.19 million (-81.71% YoY).
Ping An's point of view:
Prices of rare earths fell in the first half of the year, and preparations were made to drag down profits due to falling inventory prices. Overall rare earth prices showed a downward trend in the first half of 2023. According to Baichuan Yingfu, the average price of praseodymium oxide and neodymium oxide in the first half of the year was 574,200 yuan/ton, down 40% from the previous year; the average prices of dysprosium oxide and titanium oxide were 2.146,400 yuan/ton and 10.4571 million yuan/ton, down 23.2% and 25.8% respectively. Affected by the general decline in rare earth prices, the gross margin of the company's products declined in the first half of the year. The gross profit margin of rare earth oxides was 15.81% (year-on-year -8pct), and the gross profit margin of rare earth metals and alloys was 4.21% (-0.98 pct). At the same time, preparations for stock price reductions for some commodities increased compared to the same period last year. Asset impairment was calculated at 195 million yuan, dragging down profits to a certain extent.
The acquisition of mining projects is progressing steadily, and resource security will be further consolidated. The company issued shares to specific targets to finance the acquisition of the Chinese-rare Hunan mining project progressed in an orderly manner. It assessed the mine's recoverable reserves, 12.99 million tons of ore, and the rare earth oxide content of 14,171 tons. After distribution is completed, the maximum production capacity of all rare earth mines in Jianghua Yao Autonomous County in Hunan is expected to reach 2,840 tons/year REO. Of these, the ammonium salt process is 1,840 tons/year, which has reached full production in 2022; the magnesium salt process is 1,000 tons/year. Construction of the magnesium salt process is scheduled to begin in 2024 and full production in 2026. The 5000t/a rare earth separation and processing project in Zhongxi Yongzhou (formerly Xinghua New Materials), a subsidiary of Zhongxi Hunan, continues to advance. It is currently in the energy evaluation stage. It is expected that production and trial operation will begin in 2023. The exploration and transfer of the Shenggongzhai rare earth mine is being actively carried out, and the mine geological environment protection and land reclamation plan has been reviewed by the Ministry of Natural Resources.
Investment suggestions: As the boom in terminals such as new energy vehicles gradually picks up, the elasticity of demand for rare earths is expected to gradually unleash, and the company's performance is expected to grow. Prices of rare earth products fluctuated greatly. The adjusted company's net profit for 2023-2025 was 238, 520 million yuan, and 704 million yuan (the original forecast values were 488, 611 million yuan, and 777 million yuan). The corresponding PE is 117.6, 53.9, and 39.8 times, maintaining the “recommended” rating.