While consolidating the position of the renewable resources processing equipment industry, the company actively distributes the renewable resources operation business. Now it has developed into a leading enterprise in three subdivisions: rare earth recovery, renewable resources processing equipment and elevator parts. Benefiting from the continuous release of production capacity, it is estimated that the company's return net profit from 2023 to 2025 will be 3.49x497 million yuan respectively, giving the company 20 times PE valuation in 2023, corresponding to the target price of 12 yuan. Cover and give a "buy" rating for the first time.

Company profile: China's leading manufacturer of renewable resources processing equipment and operators of comprehensive utilization of renewable resources.

Since listing, the company has actively distributed the renewable resources operation business while continuously strengthening the product upgrading and technological innovation of renewable resources processing equipment. Now it has developed into a leading enterprise in three subdivision fields: rare earth recovery, renewable resources processing equipment and elevator parts. Affected by the fall in rare earth prices, the company's revenue and net profit in the first half of 2023 were 3.529 billion yuan /-185 million yuan respectively, down 23.71% from a year earlier. 147.81%.

Industry analysis: rare earth recovery is an important supplement to the supply of rare earths. In the context of strong downstream demand and the state's strict control of rare earth production quotas, rare earth recycling has become an important source. According to Shanghai Nonferrous Network, the recovery of praseodymium and neodymium oxide accounted for more than 30% of the global total supply in 2021. Because NdFeB permanent magnet materials produce about 30% of the waste in the production process, the market supply of NdFeB waste is positively related to the output of NdFeB permanent magnet materials. In 2022, the output of rare earth permanent magnet materials in China was 246000 tons, an increase of 15.3% over the same period last year. The substantial increase in production ensured the growth of NdFeB waste at the raw material end.

Rare earth recycling bibcock to achieve closed-loop industrial chain. The company is a national leading enterprise in the comprehensive utilization of rare earth resources, with a market share of more than 20%. Its business scope covers NdFeB waste recycling, rare earth oxide separation and permanent magnet materials, forming an industrial chain closed loop. At the raw material end, the company cooperates with Southern rare Earth to build an annual comprehensive utilization project for the treatment of 60,000 tons of magnetic waste, which can produce 68000 tons of mixed rare earth oxide raw materials (about 17000 tons of discounted REO), providing the company with high-quality raw materials. In addition, the company's rare earth division has an annual production capacity of 12000 tons of rare earth oxides and 7000 tons of magnetic materials.

Scrap processing equipment leader, continue to promote high-end strategy. According to the statistics of China scrap Steel Application Association, the scrap recycling equipment produced by Huahong Technology has ranked first and second in China in revenue for many years. In 2022, the company issued convertible bonds to build a large-scale intelligent renewable metal raw material processing equipment expansion project with high profit margin and certain technical threshold. The project not only expanded the company's production capacity, but also further promoted the high-end strategy. The unit price of the company's renewable resources equipment increased from 4514,000 yuan per unit in 2018 to 941900 yuan per unit in 2022, and the CAGR from 2018 to 2022 was 20.19%.

The business of renewable resources operation has developed rapidly, and the business of elevator parts and components has declined slightly. In the first half of 2023, the Beijing Huahong scrapped vehicle disassembly and expansion project was completed and put into production, and it is still in the production capacity climbing stage. Affected by macro factors, the company's elevator parts business achieved revenue of 610 million yuan in 2022, down 13.0% from the same period last year, and gross profit of 180 million yuan, down 7.7% from the same period last year. The company actively layout security components system, and choose the opportunity to further expand the product line, in order to improve profitability.

Risk factors: the risk of raw material price fluctuation; the risk of rare earth price fluctuation; the risk of macroeconomic fluctuation; the risk that the company's fund-raising projects are not as expected; the risk of industry policy; the risk of intensified market competition.

Profit forecast, valuation and rating: the company attaches great importance to the expansion in the field of circular economy, while consolidating the position of renewable resources processing equipment industry, it has formed renewable resources operation industries such as scrap steel processing, scrap automobile disassembly, comprehensive recycling of rare earth recycled materials and so on. Rare earth prices have fallen sharply since 2023, and the company's profitability has been impaired. Under the tightening trend of rare earth supply and demand, rare earth prices are expected to stabilize and rebound in 2025. The company's net profit from 2023 to 2025 is expected to be 3.49shock 4.97 / 603 million yuan, respectively, corresponding to the EPS forecast of 0.60 pound 0.85pm 1.04 yuan. Select Shenghe Resources, Northern rare Earth, Ningbo Yunsheng, Tianqi shares and Tongli Risheng as comparable companies. At present, the above-mentioned comparable companies are based on Wind consensus expectations of an average PE valuation of 20 times in 2023. We give the company 20 times PE valuation in 2023, corresponding to the target price of 12 yuan, covering and giving a "buy" rating for the first time.