Event: Baotou Iron and Steel Co., Ltd. issued a semi-annual report in 2023, the company's operating income reached 35.583 billion yuan, down 13.35% from the same period last year; the net profit belonging to shareholders of listed companies was 413 million yuan, down 2.28% from the same period last year.

Comments:

The company is the world's largest supplier of rare earth upstream resources. Baiyun Obo Mine, owned by Baogang Group, the controlling shareholder, is a world-famous treasure house of resources, with proven iron ore reserves of 1.4 billion tons, rare earth oxide reserves of 39 million tons, ranking first in the world, fluorite reserves of 130 million tons, ranking second in the world, and niobium reserves of 6.6 million tons, ranking second in the world. Baotou Iron and Steel Group mining Bayan Obo ore, exclusive supply company, the company has the right to develop Bayan Obo ore resources. The company owns Bayan Obo mine tailings reservoir, with resource reserves of 200 million tons, rare earth oxide reserves of about 13.82 million tons and fluorite reserves of 43.92 million tons.

The second batch of rare earth mining targets in 2023 will be issued soon. The total amount control target of the first batch of rare earth mining in 2023 is 120000 tons of REO, an increase of 19200 tons of REO over the first batch of 2022. All the increased targets are given to the company, and it is expected that the second batch of rare earth mining targets will continue to increase compared with the same period last year. In 2022, after the storm of rare earth concentrate price increase, the company and the affiliated company Northern rare Earth finally reached an agreement that the two sides calculated and adjusted the rare earth concentrate price every quarter according to the pricing formula, re-signed the rare earth concentrate supply contract or supplementary agreement and announced that the related transaction price of rare earth concentrate was 35313 yuan / ton, 31030 yuan / ton and 20176 yuan / ton (REO=50%) respectively in the first three quarters of 2023.

The overall operation of the iron and steel industry remains weak. In the first quarter of 2023, under the influence of the continuous recovery of market confidence and the improvement of supply and demand structure, the prosperity of the iron and steel industry recovered somewhat; in the second quarter, due to the recovery of steel demand, steel prices changed from rising to falling. Real estate policy was relaxed in the second half of 2023, which is expected to boost steel demand, leading to a small repair of steel prices, but the steel industry as a whole remains weak.

Investment advice and rating: the company's operating income from 2023 to 2025 is estimated to be 73.55 billion yuan, and the net profit from the parent is 4.156 billion yuan, and the corresponding EPS is 0.02, 0.06 and 0.09 respectively. The sluggish demand in the iron and steel industry has led to a decline in the net profit per ton of steel for the company's traditional steel products, but the company has been given a "overweight" rating considering the company's first rare earth oxide reserves in the world and the annual increase in rare earth mining indicators.

Risk hints: the risk that sales of new energy vehicles and wind power installations are lower than expected, resulting in lower-than-expected prices of rare earths; the risk of a downturn in the steel industry, leading to continued substantial losses in the company's steel business; and the risk that performance forecasts and valuation judgments are less than expected.