Introduction to this report:

The company is a leader in medium and heavy rare earths, expanding resources and exploring magnetic materials. However, the gap between medium and heavy rare earth supply and demand may continue, and the price center is expected to rise. In 2024-2025, the company will experience a sharp rise in volume and price.

Key points of investment:

First coverage, “increased holdings” rating, with a target price of 45.39 yuan. As a leader in medium and heavy rare earth resources, the company gradually releases its own rare earth mines, and performance will enter a harvest period. It is predicted that the company's 2023-2025 EPS will be 0.65/1.28/2.09 yuan respectively. Referring to comparable company valuations, the company was given 70x PE in 2023, corresponding to the target price of 45.39 yuan, giving it an “increase in holdings” rating.

Relying on Guangdong Rare Earth Group, a leading medium and heavy rare earth company was formed. The company is the only listing platform under the national Guangdong Rare Earth Group and has all rare earth mining warrants in Guangdong Province. Guangdong Province is rich in medium and heavy rare earth resources, second only to Jiangxi. In the context of the integration of domestic rare earth resources, the company is expected to achieve leapfrog growth by leaps and bounds, relying on strong shareholder resources.

Medium-heavy rare earths: The demand side is gaining momentum, and supply rigidity is expected to strengthen price elasticity. In the context of the integration of rare earth resources, the supply of medium to heavy rare earths is more rigid. Furthermore, the recent turbulent situation in Myanmar may have led to a contraction of mine-side imports. On the demand side, energy-efficient fields such as new energy vehicles, wind power, and humanoid robots are the core driving force for future rare earth demand. We estimate that the mid-term heavy rare earth supply and demand gap from 2023-2025 will be 1795/3168/4398 tons, respectively, and the price center is expected to rise.

Expanding resources and exploring magnetic materials downwards, the performance harvest period has arrived. After the company completed the expansion of the Pingyuan Renju and Dapu Wufeng rare earth mines, production resumed growth and reached the quota production capacity. The Xinfeng Zuokeng Mine under construction has rare earth resource reserves of 111,400 tons, and production is planned to be 3,000 tons/year. It is expected to contribute a significant increase after production is put into operation. In addition, the first phase of Shengyuan's high-end magnetic materials project of 2,000 tons has also been completed and put into operation, and has successfully developed important customers such as Wolong Electric and BYD (sample delivery), which will further increase the company's profit margin.

Risk warning: Downstream demand for rare earths has declined sharply, and the release of overseas rare earth mine supply has exceeded expectations.