Incident: The company achieved revenue of 5.884 billion yuan in 2023, -7.05% year-on-year, net profit of 448 million yuan, +10.74% year-on-year, after deducting 385 million in non-net profit, +0.34% year-on-year.

The company's magnetic materials sector performed steadily, and the motor business continued to reduce losses. 1) Magnetic materials continue to be released, and the automobile sector, especially train magnets, continues to increase rapidly. With the release of production capacity at the Nantong base, the company's shipments continued to expand in 2023. The company's NdFeB permanent magnet material production/sales volume was 175/17,200 tons, +12.2% year-on-year, and the production/sales volume of NdFeB permanent magnet materials was 444/4.05 million pieces, respectively, +385%/+480% year-on-year, of which sales of high-performance NdFeB permanent magnet materials for the automotive industry reached 11,300 tons, +19.2%, and 4.49 million sets of energy-saving and new energy vehicle drive magnets., the growth rate is relatively fast . 2) Revenue declined slightly due to falling prices in the rare earth permanent magnet industry chain in 2023, but the company's profitability remained stable: affected by relatively weak downstream demand, the 2023 rare earth price index was -18.4%, and the price of NdFeB fell as well, causing the company's magnetic material revenue to -7.1% year-on-year in the face of increased shipments. However, the company's gross margin of magnetic materials still reached 18.1%, down only 0.7 pct from 2022. This also reflects that the company has always maintained a good competitive position in the industry and customer relationships, thus fully guaranteeing its own profitability. 3) The loss amount of Shanghai Dajun Electric's business narrowed further: in 2023, the company's new energy vehicle motor drive system production/sales volume was 2.25/22,700 units, respectively, -13.7%/+2.4% year on year. Affected by market factors, Shanghai Dajun Electric's business still lost 37.28 million for the whole year, but the year-on-year loss decreased by 40%.

The company is expected to continue to release NdFeB, and has deep technical accumulation and outstanding product structure advantages. 1) Continued expansion of production capacity: The company's production capacity is expected to expand to 36,000 tons by 2026 (10,000 tons in the East-West factory+80,000 tons in the Fuhai factory+18,000 tons in the Nantong base), and future production and sales may continue. 2) Deep technology accumulation: At present, the company's grain optimization technology (TOPS) related product coverage rate has reached 90%; heavy rare earth diffusion technology (THRED) coverage rate exceeds 80%; ultra-light rare earth magnets sales have increased 190% year on year, accounting for nearly 10% of the company's magnet product sales; 3) The product structure is better: the company has fully entered the supply chain of the world's mainstream car companies, and the automobile market accounts for about 70% of the company's downstream customers (of which energy-saving and new energy vehicles account for about 50%), and tram magnets have a better release environment, profitability and affordability.

Profit forecast and investment advice: The company's net profit is expected to return to mother in 2024-2026 of 5.6/69/8.3 billion. Considering the high growth of rare earth permanent magnets and the steady expansion of the company's production capacity, it will continue to be rated as “increase in wealth”.

Risk warning: Risk of downstream demand falling short of expectations, risk of policy changes, risk of supply exceeding expectations.