Event

The company released its three-quarter report on October 27 in 2023, with revenue of 2.072 billion yuan in the first three quarters, down 0.93%; net profit of 246 million yuan, down 11.78%; and deducting non-net profit of 210 million yuan, down 9.75%. 3Q23 realized revenue of 663 million yuan, a decrease of 17.3%, a net profit of 76 million yuan, a decrease of 33.3%, and a deduction of 72 million yuan for non-net profit, a decrease of 23.4%.

Comment

Q3 performance has declined slightly and cost control is good. Q3 company's revenue ring fell by 17%, manganese series materials stabilized, magnetic materials declined slightly, and the net profit of the parent decreased by 33%, mainly due to the gross profit margin of 26.16% and the 3.49pcts decline, which reduced the profit space of magnetic materials under competitive pressure; the government subsidy was 4 million yuan, down 83%; the profit of the participating company ferric phosphate business declined, and the company's investment income fell 43% to 4 million yuan. Q3 company R & D expense rate 4.68%, ring drop 0.06 pcts; management expense rate 5.58%, ring increase 0.72 pcts; sales expense rate 3.32%, ring increase 0.08pcts, the overall cost control is good.

Baowu enable under the magnetic materials business is expected to continue to benefit. The company's magnetic materials cover permanent magnet and soft magnetic. At present, the production capacity of permanent magnet ferrite is 20,000 tons / year; rare earth permanent magnet capacity is 2000 tons / year; soft magnetic ferrite capacity is 5000 tons / year; through the reconstruction and expansion of metal magnetic powder core, the production capacity of soft magnetic powder is 8000 tons / year. At present, the rise in raw material prices, product homogenization competition and other reasons lead to the company's magnetic material plate profit space has been compressed.

With the expansion of the application scene of magnetic materials, according to the company's production capacity planning, the company's magnetic shipments are expected to maintain a growth rate of 15% in 23-25 years. Baowu of China formally reorganized with Sinosteel in July 23. Baowu will indirectly hold a 32.85% stake in the company. to achieve the management and control of the company, Baowu is expected to empower the raw material iron red, market expansion, cost control and other aspects, and the profit margin of the company's magnetic plate will continue to improve.

Manganese tetroxide expands production and capacity, and battery-level applications open room for growth. As the leading enterprise of manganese tetroxide, the company has two prosperous production and sales of battery grade four manganese in the first half of the year. At present, the electronic grade four manganese production capacity is 50,000 tons / year, which is used in the manufacture of manganese zinc soft magnetic ferrite; the battery grade four manganese production capacity is 15,000 tons / year, which is used in the manufacture of lithium manganate, ferromanganese phosphate lithium and sodium cathode materials. Benefiting from the growth in demand, the company expects to expand another 10,000 tons of battery-grade four manganese production capacity, which is expected to be put into production by the end of the third quarter.

Profit Forecast & Investment suggestion

It is estimated that the 23-25 net profit of the company will be 384 million yuan, 494 million yuan and 618 million yuan respectively, and the corresponding EPS will be 0.51,0.65,0.81 yuan respectively, and the corresponding PE will be 16 times, 13 times and 10 times respectively, maintaining the "buy" rating.

Risk hint

The risk of capacity expansion is less than expected, the risk of fluctuation of raw material prices, and so on.