2023H1, the company realized operating income of 2.686 billion yuan, down 16.24% from the same period last year, and realized net profit of-187 million yuan, down 177.76% from the same period last year. The company is the leading enterprise in the rare earth permanent magnet material industry. with the implementation of the double carbon policy, new energy vehicles, industrial robots, energy-saving household appliances, wind turbines and other rare earth permanent magnets develop rapidly downstream, and potential growth points such as humanoid robots continue to emerge in the future. the demand for high-performance NdFeB has been improving for a long time. Taking into account the impact of macroeconomic and rare earth prices continued to fall, we lowered the company's 23-24 net profit forecast of 345 million yuan (the original forecast was 943 million yuan 1.42 billion), increased 2025 net profit forecast of 609 million yuan, combined with the industry average valuation level, give the company 2023 30 times PE valuation, adjust the company target price to 9 yuan, maintain the "buy" rating.

Demand weakens and prices fall, putting pressure on the company's first-half results. 2023H1, the company achieved operating income of 2.686 billion yuan, down 16.24% from the same period last year, mainly due to the decline in income from the consumer electronics sector due to the contraction of the consumer electronics market; the net profit from home was-187 million yuan, down 177.76% from the same period last year, mainly due to the impairment loss of assets of 172 million yuan. 2023Q2, the company realized operating income of 1.255 billion yuan, down 37.38% from the same period last year, down 12.21% from the previous year, and realized net profit of-206 million yuan. In the first half of 2023, due to the influence of the global economy, industry cycle and other factors, the downstream market demand weakened, the market price of upstream rare earth raw materials continued to fall, and the market price and product gross profit margin of NdFeB permanent magnet materials decreased.

The field of new energy vehicles is growing at a high speed, maintaining a leading position in China. According to the China Association of Automobile Manufacturers, China produced 3.788 million new energy vehicles in the first half of 2023, an increase of 42.4 percent over the same period last year, and the penetration rate of new energy vehicles reached 28.3 percent. According to the company announcement, 2023H1, the company achieved revenue of 927 million yuan in the field of new energy vehicle applications, an increase of 54% over the same period last year, of which 1.032 million sets of domestic new energy main drive sets, with a market share of 27.2%, improved 2.9pcts compared with the end of 2022. In the future, the company will continue to focus on domestic and foreign mainframe factory customers, and the market share of new energy vehicles is expected to further increase.

The consumer electronics and industrial sectors declined compared with the same period last year, seizing the growth opportunities of market segments. According to the company announcement, the company achieved revenue of 510 million yuan in consumer electronics in the first half of 2023, down 46 percent from the same period last year, and 948 million yuan in industrial and other application areas, down 14 percent from the same period last year. In terms of consumer electronics, due to the strong competition of SSD and the decline in demand for PC, shipments of major manufacturers of HDD hard drives declined significantly in the first half of the year; on the industrial side, the demand for air conditioners increased due to the influence of El Ni ñ o. According to Oviyun.com data, the retail volume of air conditioners in China in the first half of 2023 was 36.9 million units, an increase of 17.6% over the same period last year. According to the company's report, the company has seized the growth opportunity of market segments and increased its market share in areas such as energy-efficient air conditioners.

Baotou project continues to advance, production capacity is expected to increase significantly. The company has established world-class production, machining and surface treatment production lines of sintered NdFeB in Ningbo and Baotou, forming a production capacity of the whole value chain from blank to finished product. According to the company announcement, the company has an annual production capacity of 21000 tons of high-performance NdFeB, and the intelligent manufacturing project of 15000 tons of high-performance rare earth permanent magnet materials in Baotou is being implemented as planned. After the completion of the Baotou project, the company will form an annual production capacity of 36000 tons of high-performance NdFeB.

Risk factors: macroeconomic fluctuations; sharp fluctuations in rare earth prices; lower-than-expected downstream demand; capacity expansion is not as expected.

Profit forecast, valuation and rating: the company is a leading company in the rare earth permanent magnet industry, ploughing high-performance NdFeB magnetic materials for a long time. Taking into account the impact of the macroeconomic and rare earth prices, we lowered the company's 23-24 net profit forecast to 345 million yuan (the original forecast is 943,1242 million yuan), and increased the 2025 net profit forecast by 609 million yuan. The corresponding EPS predictions are 0.31, 0.40, 0.55 yuan, respectively. According to the company's industry, business structure, downstream consumer similarity and other dimensions, we select Jinli permanent Magnet, Earth Bear and Youyan new materials as comparable companies. The current average PE (Wind consensus expectation) of the above-mentioned companies in 2023 is about 30 times, giving the company a valuation of 30 times PE in 2023, lowering the company's target price to 9 yuan and maintaining a "buy" rating.