The company released its quarterly report for the third quarter of 2023 on October 18, with revenue of 8.32 billion yuan in the first three quarters, down 29.1%, net profit of 140 million yuan, down 46.31%, and net profit of 120 million yuan, down 49.19%. 3Q23 realized revenue of 2.672 billion yuan, an increase of 1.9%, a net profit of 87 million yuan, an increase of 521.43%, and a non-return net profit of 82 million yuan, an increase of 811.11%.

Q3 performance greatly increased month-on-month, platinum group + rare earth business profit improvement, steady growth of targets. The net profit of Q3 company deducted from non-return reached 82 million yuan, an increase of 811%. Affected by the decline in prices and demand for rare earths and platinum group metals in the first half of the year, profits declined significantly, the price of Q3 rare earths stabilized and rebounded, the average price of praseodymium and neodymium oxide fell slightly by 1% from the previous month, and the company's rare earth business gradually picked up. Semiconductor target profit steady growth, increase market expansion, 8-12 inch target sales proportion to further increase, and continue to promote product verification. Q3 company's gross profit margin was 8.1%, with a monthly increase of 2.57pcts; net profit rate was 3.39%, and 3.03pcts was increased, which reached a higher level in a single quarter, mainly due to the optimization of business structure and the increase in the proportion of high value-added businesses such as targets.

Target Dezhou base project has been put into production, new products continue to verify, production capacity gradually climb. The company covers a full range of semiconductor targets, mainly copper targets, and 1H23 breaks through the key technologies of 2-inch high-purity cobalt targets and cobalt anode products for cutting-edge process nanointerconnection that is more advanced than copper interconnection; continuously promote the development of tantalum target process optimization, advanced storage tungsten and tungsten alloy targets. The transformation of the production line of the company's Changping plant has been completed, with a current production capacity of 35,000 yuan per year, and the Dezhou base plans to expand 43000 pieces of production capacity, which has been officially put into production in September 23, and the current production capacity is gradually climbing. In terms of raw materials, the company has achieved self-supply of high-purity copper and cobalt metals.

The magneto-optical medicine plate optimizes the industrial layout, and the high-end products are promoted in an orderly manner. 1) Magnetic plate: in May 23, it is planned to transfer 38.72% equity of Youyan rare earths to China rare earths, actively promote production expansion of magnetic products and high-end light-emitting materials, and strengthen production expansion and market development of magnets for industrial motors. 2) Optical plate: promote the downstream extension of infrared optical product industry chain, R & D and design of uncooled infrared lens components, large diameter germanium single crystal and silicon single crystal process for infrared. 3) Medical plate: promote the development of the third generation digital customized orthodontic treatment system, and build a digital "fixed + invisible" new business type model.

According to the results of the first three quarters, the company's 23-25 net profit has been raised by 19%, 11% and 8% respectively. It is estimated that the company's 23-25 net profit will be 239 million yuan, 365 million yuan and 504 million yuan respectively, corresponding to EPS 0.28,0.43 and 0.60 yuan respectively, and 50 times, 33 times and 24 times of PE respectively, maintaining the "buy" rating.

Risk hint

The expansion speed of the fab plant is not as fast as expected; the capacity expansion is not as expected.