Incident: The company released its annual report. In 2023, it achieved revenue of 5.884 billion yuan, a year-on-year decrease of 7.05%; total profit of 556 million yuan, an increase of +29.03%; net profit of 448 million yuan, an increase of +10.16%; and net profit to mother of 448 million yuan, an increase of +10.74%.

Quantitative profit has risen sharply, highlighting the advantages of established leading NdFeB companies. 1) Volume: The Nantong base has put into operation another 6,000 tons, and the company's current production capacity has been increased to 30,000 tons, greatly improving the company's supply guarantee capacity to customers around the world. In addition, the Yantai base and Jianghua base have upgraded equipment to improve production efficiency, improve the compatibility between orders and production capacity, and lay a solid foundation for the company's performance growth. During the reporting period, the company also overcame adverse factors such as increasing market competition and slow recovery in downstream demand, and achieved a year-on-year increase in overall sales of NdFeB permanent magnet materials and components. In '23, the company's NdFeB magnet production and sales volume was 17512 tons and 17178 tons respectively, up 12.66% and 12.16%. Among them, high-performance NdFeB (for automobiles) was 11874 tons and 11,345 tons, an increase of 22.11% and 19.23%. The share of high performance was further improved, and the product structure was clearly optimized. 2) Profit: In terms of gross profit per unit, the company's NdFeB permanent magnet materials and components business was about 60,000 yuan/ton in 2023, up slightly from 58,000 yuan/ton in 2022. Furthermore, in terms of gross margin, the company's gross margin was 18.09% in '23, which is also a significant increase from 2022. 3) Price: Affected by factors such as the continued fluctuation and decline in prices of rare earth raw materials, slow recovery in downstream market demand, and increasingly fierce industry competition, the company's high-performance NdFeB permanent magnet material product prices were under pressure, and revenue declined slightly year-on-year. However, due to the company's high overseas business share and the significant increase in production and sales of the NdFeB permanent magnet material component business in 2023, unit gross profit remained steady and rising.

The month-on-month decline in net profit in Q4 was mainly due to the deferred income tax return based on the original goodwill calculation, and profit before tax still maintained a month-on-month growth trend. On a quarterly basis, the company's total Q4 profit was 155 million yuan, up 11.7% from Q3, and its net profit decreased by 0.48 million yuan compared to Q3, mainly due to an increase of 65 million yuan in income tax expenses. Looking at the breakdown, the increase in Q4 income tax was mainly affected by deferred income tax transfers.

Profit forecast: In 2024-2026, we expect the company's EPS to be 0.73, 0.85, and 1.01 yuan, respectively, and PE will be 15, 13, and 11 times, respectively, maintaining a “buy” rating.

Risk warning: Project progress falls short of expectations, capacity release falls short of expectations, metal price increases fall short of expectations