On March 27, 2024, the company released its 2023 annual report. In 2023, the company achieved revenue of 5.883 billion yuan, a year-on-year decrease of 7.05%; net profit to mother of 448 million yuan, an increase of 10.74% over the previous year; net profit after deduction of 385 million yuan, an increase of 0.34% over the previous year. With 2023Q4, the company achieved revenue of 1,247 billion yuan, a year-on-year decrease of 29.24% and a decrease of 15.16%; net profit to mother of 80 million yuan, a year-on-year decrease of 19.33% and a decrease of 36.9% month-on-month; net profit after deducting non-return to mother of 31 million yuan, a decrease of 65.24% year-on-year and 74.15% month-on-month.

Volume increases offset price reductions guarantee revenue, and product structure optimization+cost reduction have achieved a slight increase in profit. The increase in the company's performance was mainly due to a year-on-year increase in gross profit of 250 million yuan. The increase in gross profit was mainly due to increased sales of magnetic products, offsetting the negative impact on prices. ① Product structure: It has formed a benign situation where the automobile market (especially new energy vehicles) is dominated by balanced development in various other major application fields. Overall sales of high-performance NdFeB permanent magnet materials and components increased year-on-year in 2023. Among them, shipments of high-performance NdFeB permanent magnet materials and components in the automotive market increased 20% year on year, and the sales share increased from 62% to 66%. Delivery of 4.49 million sets of energy-saving and new energy vehicle drive motor magnets was completed, up 29% year on year. ② Amount:

In 2023, the company sold 17,178 tons of NdFeB permanent magnet materials, up 12.16% year on year; sold 4047 million NdFeB permanent magnet components, up 479.68% year on year. ③ Price: The year-on-year decline in the price of the raw metal praseodymium affected the company's revenue more. The 2023 rare earth price index fell from 297.02 at the beginning of the year to 198.03 at the end of the year, a decrease of about 33.33%.

④ The company's two high-margin products, NdFeB permanent magnet material component products and drive motor magnets, grew faster, and the product structure was optimized. In addition, the company's annual gross margin in 2023 was 18.09%, achieving a year-on-year increase of 3.7 pct; the net profit margin was 7.63%, up 1.2 pcts year on year.

The narrowing of losses in Shanghai led to an increase in income tax expenses, which was the biggest drag in Q4. In 2023, Shanghai Dagun's revenue increased by 14.13% to 104 million yuan, and losses narrowed sharply to 37.27 million yuan over the same period last year. As a result, the company's overall Q4 confirmed deferred income tax expenses increased dramatically. Income tax expenses in a single quarter reached 76.25 million yuan, causing Q4 performance to decline a lot from month to month.

Core highlights: ① Production capacity continues to expand. Capacity utilization is expected to continue to increase. At the end of 2023, the company already had a production capacity of 30,000 tons of NdFeB blanks per year. Among them, the capacity utilization rate of the Dongxi Plant and Fuhai Plant has achieved 88%. The Nantong base has built 12,000 tons of production capacity and will enter the climbing phase. The release of additional production in the future will increase the company's profits. ② Excellent raw material guarantee ability. In 2022, the production capacity of the company's joint venture with Minmetals Rare Earth Group, a subsidiary of China Rare Earth Group, was increased by 200% to fully guarantee the company's raw material supply. ③ Outstanding R&D advantages. R & D advantages. The combination of the three core technologies has spawned the company's three product lines of low heavy rare earth magnets, non-heavy rare earth magnets, and ultra-light rare earth magnets. Heavy rare earth diffusion technology (THRED) related products cover more than 80% of the company's products; sales of ultra-light rare earth magnets increased 190% year on year, accounting for nearly 10% of the company's magnet product sales. It won awards such as “National Manufacturing Single Champion Enterprise”.

Investment advice: Considering the release of existing production capacity and the expected recovery in downstream demand, we expect to achieve net profit of 4.81/5.54 billion yuan to mother in 2024-2026, and EPS of 0.59/0.68/0.78 yuan/share, respectively. The PE corresponding to the closing price on March 29 was 19/17/14X, respectively, maintaining a “recommended” rating.

Risk warning: the risk of falling rare earth prices, falling short of expectations in project commissioning, increased competition in the industry, etc.