Industry judgment: The downstream boom is high and the proportion of high-performance NdFeB has increased, and the company has core competitiveness.
According to the Jinli Permanent Magnet prospectus, in 2020-2025, the global and Chinese demand for high-performance NdFeB permanent magnet materials CAGR was 14.7% and 16.6% respectively. The market space is large and the growth rate is fast. Looking at downstream application scenarios: In 2020-2025, the CAGR consumption of high-performance NdFeB for new energy vehicles, wind power generation, and energy-saving inverter air conditioners was 32.1%, 13.1%, and 16.3%, respectively. In the high growth rate of the industry, the company's core competitive advantage is highlighted: 1) Mastering the world's leading crystal boundary penetration technology. In 2018-2022, the company's grain boundary penetration technology products accounted for 24.99%, 31.66%, 42.77%, 58.73%, and 77.94%, respectively.
2) Under the sales and production model, production capacity expansion is close to doubling, with production capacity of 23,000 tons in 2023, with strong certainty of reaching 40,000 tons of production capacity by 2025; 3) The gross margin level can still be maintained at a stable level. By 2023Q3, gross margin was close to the level corresponding to the high rare earth price point in 2023Q2, and with the continuous volume of orders for new energy vehicles and robot orders with higher gross margins, the scale effect will be more obvious after the release of new production capacity. We expect the company's gross margin level to increase further.
Key answers: Answers to several market concerns about growth, competitive landscape, industrial chain, etc. 1) Sustained growth under a high market share: In terms of production capacity, on-hand orders and production capacity expansion guarantee growth in the next 2-3 years; in terms of exports, exports are expected to account for more than 20% in 2023, and NEVs and overseas wind power customers are expected to contribute more export revenue; in terms of new business, we are waiting for energy-saving motors and humanoid robots to be released. 2) Industry expansion and competition pattern: Although all four leading companies in the industry have plans to expand production capacity, for a company such as Jinli Permanent Magnet, which is shifting from low value to high value products, this does not necessarily mean a decrease in profitability. 3) Downstream customer industry chain cost reduction: Overseas customers place more emphasis on technology, R&D, and iteration. The company's R&D expenses are 56.89% in the past 4 years, which is the highest growth rate among the top 4 magnetic companies; although domestic customers have higher requirements for cost and cost performance, the magnetic steel-like airbags that drive motors are key components involving life safety issues, and the barriers are high; customers outside the NEV sector also have high requirements for magnetic steel, and profitability is expected to be maintained.
Profit forecast: We forecast that in 2023-2025, the company's EPS will be 0.53, 0.74, and 1.01 yuan, respectively, and PE will be 32, 23, and 17 times, respectively, giving the company 30 times PE in 2024, maintaining a “buy” rating.
Risk warning: customer progress and project commissioning fall short of expectations, fluctuating raw material prices, worsening competitive landscape, etc.