High-performance rare earth permanent magnet materials are widely used, and market demand is growing rapidly. High-performance rare earth permanent magnet materials are essential core materials in the fields of clean energy, energy saving and environmental protection. Compared with traditional motors, rare earth permanent magnet motors can save up to 15% to 20% of energy, and will make an outstanding contribution to achieving “carbon peak and carbon neutrality.” Global consumption of high-performance rare earth permanent magnet materials increased from 47,500 tons in 2018 to 102,500 tons in 2023, with a compound annual growth rate of about 16.6%.

Global consumption of high-performance rare earth permanent magnets is expected to reach 2271,000 tons by 2028, with an average compound growth rate of 17.2% between 2023-2028. Among them, the consumption of new energy vehicles, energy-saving inverter air conditioners, wind power, industrial robots, and humanoid robots will reach 127,600 tons, 24,000 tons, 0.66 million tons, and 0.29 million tons, respectively. In March 2024, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which proposes the implementation of four major actions: equipment renewal, consumer goods trade-in, recycling, and standard upgrading. Demand in the fields of new energy vehicles and energy-saving inverter air conditioners is expected to continue to grow, and the rare earth permanent magnet materials industry will continue to develop rapidly.

The company is the world's leading producer of high-performance rare earth permanent magnets. NdFeB production and sales continue to grow. The company specializes in R&D, production, sales and comprehensive recycling of high-performance NdFeB permanent magnet materials, and focuses on new energy, energy saving and environmental protection applications. It is the world's leading producer of high-performance rare earth permanent magnet materials, and is also one of the fastest growing companies in the high-performance NdFeB permanent magnet material industry. In the field of new energy vehicles, the company's products are used by the world's top 10 NEV manufacturers to produce drive motors; in the field of energy-saving inverter air conditioning, 8 of the top 10 global manufacturers of inverter air conditioning compressors are all customers of the company; in the field of wind power, 5 of the top 10 global wind power manufacturers are all company customers. In 2023, the company's total output of high-performance rare earth permanent magnet materials was 15,154 tons, up 18.52% year on year, and total sales volume was 15,122 tons, up 25.60% year on year. Affected by factors such as price fluctuations of rare earth raw materials, the company's performance in 2023 was under short-term pressure. During the period, it achieved revenue of 6.688 billion yuan, a year-on-year decrease of 6.66%; net profit to mother was 564 million yuan, down 19.78% year on year.

Focusing on the stable operation of the main business, the NEV sector maintains rapid growth at a high base. The company continues to focus on the fields of new energy, energy saving and environmental protection, focusing on core application areas such as new energy vehicles and auto parts, energy-saving inverter air conditioning, wind power generation, 3C, robots and industrial servo motors, and energy-saving elevators. In terms of new energy vehicles and auto parts, in 2023, the company's sales volume of NEV drive motor magnetic steel products can be equipped with about 3.9 million new energy passenger vehicles, accounting for 28.5% of global NEV passenger vehicle sales. Annual revenue reached 3.03 billion yuan, an increase of 14.33% over the same period last year. In terms of energy-saving inverter air conditioners, the company's sales volume of magnetic steel products in 2023 is about 54 million units that can be equipped with inverter air conditioning compressors, and annual revenue reached 1,324 billion yuan. In terms of wind power generation, the company's product sales volume in 2023 is about 3.9 GW, with an installed capacity of 3.9 GW of assembled wind turbines, and annual revenue reached 585 million yuan. In addition, the company's revenue in the field of robots and industrial servo motors reached 217 million yuan in 2023. At the same time, it is actively deploying new energy, energy saving and environmental protection fields such as 3C, energy-saving elevators, rail transit, etc., and has become one of the important suppliers of high-performance magnets in these fields.

The grain boundary penetration technology system is perfect, high-performance products have high market recognition, and customers in the high-performance rare earth permanent magnet materials industry have strong stickiness and high entry threshold. The company uses its expertise and technical expertise in high-performance NdFeB permanent magnet materials to provide customers with comprehensive technical solutions. At present, the company has mastered its own core technology and patent system with crystal boundary penetration technology as the core. On the one hand, the company reduces and even eliminates the addition of medium to heavy rare earths in the production process of high-performance NdFeB permanent magnet materials through formulation optimization to help customers in the wind power industry reduce their production costs; on the other hand, in the fields of new energy vehicles and energy-saving inverter air conditioners, the company uses crystal boundary penetration technology to continuously develop high-grade products and achieve large-scale production and delivery according to customer needs.

These core technologies and high-grade products have been highly recognized by customers in various fields, and have obtained multiple fixed and high-volume orders from international customers, and the company's overseas sales revenue continues to grow steadily. In 2023, the company used grain boundary penetration technology to produce 13,226 tons of high-performance rare earth permanent magnet material products, an increase of 32.72% over the same period of the previous year, accounting for 87.28% of the company's total product output during the same period, and an increase of 9.34 pcts over the same period last year.

The strategic plan is gradually being implemented. The 40,000-ton high-performance rare earth permanent magnet material production capacity company plans to build production bases in Ganzhou, Baotou, and Ningbo in 2025, and a 40,000 ton high-performance rare earth permanent magnet material production capacity and advanced magnetic component production line by 2025. Currently, the company has an annual production capacity of 23,000 tons of high-performance NdFeB permanent magnet material blanks, and the capacity utilization rate for the whole of 2023 will reach more than 90%. The Baotou Phase II 12,000 tons/year production capacity project, the Ningbo 3,000 tons/year high-end magnetic material and 100 million module production capacity project, and the Ganzhou high-efficiency and energy-saving motor magnetic material base project are under construction. It is expected that a 38,000 tons/year rough production capacity production line will be built by the end of 2024. In addition, the company plans to invest in the construction of the “Mexico Project to Build a New Production Line with an Annual Output of 1 Million Units/Magnetic Module” in Mexico. After the project is completed and delivered, it will form a production capacity of 1 million units/set of magnetic components per year, which will further help enhance the company's market competitiveness in the fields of humanoid robots and new energy vehicles.

R&D expenses continued to grow, and technological innovation helped improve core competitiveness. In 2023, the company's overall gross margin was 16.07%, a decrease of 0.11pct compared to the same period in 2022; the net interest rate was 8.48%, a decrease of 1.35pct compared to the same period in 2022. The company's R&D expenses continued to grow. From 2020 to 2023, R&D expenses were 103 million yuan, 160 million yuan, 337 million yuan, and 354 million yuan respectively. In addition to maintaining R&D investment in performance improvement, formulation optimization, and recycling of high-performance rare earth permanent magnet materials, the company is also continuously increasing R&D investment in magnetic component product research and development, robots and automation equipment in the field of humanoid robots, etc., to enhance the company's R&D and production capacity and level of automation and informatization of high-end magnetic materials and magnetic components. By the end of 2023, including Europe, America, Japan and other overseas regions, the company had a total of 115 authorized and pending invention and utility model patents.

Investment advice and profit forecasting

High-performance rare earth permanent magnet materials are essential core materials in the fields of clean energy, energy saving and environmental protection. The downstream application is broad, and market demand is growing rapidly. As the world's leading producer of high-performance rare earth permanent magnet materials, the company has a first-mover advantage in the high-performance rare earth permanent magnet materials and magnetic components industry. We expect that in 2024-2026, the company's net profit will be 7.31, 9.59 billion yuan, and 1.50 billion yuan, respectively. According to the latest share capital estimates, the corresponding basic earnings per share are: 0.54, 0.71, and 0.86 yuan/share, respectively. According to the latest stock price estimates, the corresponding PE valuations will be 28.09, 21.42, and 17.87 times, respectively, giving the company an “increase in holdings” investment rating.

Risk warning

Price fluctuation risk of rare earth raw materials, policy risk, overseas sales risk.