Incident: On March 14, 2023, the company disclosed the 2023 performance report. The company initially calculated 2023 revenue of 6.69 billion yuan, net profit to mother of 564 million yuan, net profit attributable to mother of -19.8%, net profit of 490 million yuan, year-on-year -27.7%; of these, Q4 net profit to mother was 70 million, +338% year-on-year, -57% month-on-month, net non-return profit of 60 million yuan, +358% year-on-year and -63% month-on-month. Results fell slightly short of expectations, but disrupted short-term expenses did not change the company's growth trend and maintain the company's “gain” rating.

Q4 Volume and price remained stable, and cost side drag down performance. ① Production: The estimated Q4 company's magnetic material production is about 0.42 million tons, +27% year-on-month, -3% month-on-month, ② Price: Considering the quarterly delay, the average price of Q4 praseodymium is about 590,000 yuan/ton, -1% month-on-month. Judging from the scale of revenue, the sales price of Q4 magnetic materials is basically stable. ③ Expense side: Due to factors such as accounting for employees' year-end bonuses, increased R&D investment, and increased expenses for the period before the Ningbo base is put into operation, Q4's operating costs+various expenses were about 1.56 billion yuan, +8% over the previous month (an increase of about 110 million yuan). Overall, the month-on-month decline in Q4 results was mainly dragged down by the cost side and fell slightly short of expectations.

Crystal boundary penetration technology is leading, and production capacity is released into the harvest period. The company's crystal boundary penetrating products were 9,364 tons in the first three quarters, and it is estimated that Q4 Company's crystal boundary penetrating products were 3,533 tons, accounting for 85% of the whole year, and is in a leading position in the industry. With core technology and responsiveness, the company cooperates with leading customers in various downstream fields, and has strong order and performance guarantee capabilities. The company's Baotou Phase II, Ganzhou and Ningbo projects will gradually be put into operation in 2024, and increased performance can still be expected. In addition, in October 2023, the company announced that it would change the original “Mexico Waste Magnetic Steel Comprehensive Utilization Project” to “Mexico's New Project with an Annual Output of 1 Million Units/Magnetic Module”. By extending to downstream magnetic components, it is expected to increase added value and further benefit from the explosion in demand for terminals such as new energy vehicles and humanoid robots overseas.

Demand can be expected to pick up, and the company is the first to benefit as an industry leader. Wind power: Unit consumption has dropped to a low level. As the installed volume of wind power increases, demand can be expected to pick up; electric vehicles: the trend of multiple motors intensifies, and the amount of magnetic materials used in bicycles is expected to increase in the future; humanoid robots: the value of magnetic components for single robots is high. With the volume of orders for humanoid robots in 24-25, the company's performance is expected to increase significantly.

Risk warning: Downstream demand falls short of expectations, and prices of rare earth raw materials fluctuate sharply.