occurrences
On April 25, the company released its 2024 quarterly report. In 2024, the company achieved revenue of 1,652 billion yuan, -14.89% month-on-month, and -25.43% year-on-year; net profit to mother was -99 billion yuan, a year-on-year loss.
reviews
The fall in raw material prices is hampering performance due to large inventory depreciation. The market prices of the main raw materials of 2024Q1's NdFeB were -22%/-27%/-30% month-on-month to 460,000 yuan/ton, 2.46 million yuan/ton, and 6.96 million yuan/ton, respectively. 2024Q1's asset impairment losses ranged from -91 million yuan to -126 million yuan month-on-month, mainly due to a month-on-month increase in inventory price reduction preparations due to falling raw material prices in Q1.
The sharp drop in volume and price affected revenue, and gross profit narrowed. The 2024Q1 rare earth permanent magnet industry showed a significant cyclical decline. The price of N52 NdFeB was -15.9% month-on-month to 185 yuan/kg; the company's product positioning is more high-end than N52, but the average price will also decline as the market price falls.
Considering the impact of the Q1 Spring Festival holiday, we think the company's production may have declined month-on-month. Q1's gross profit was -19.29% month-on-month to 159 million yuan, and gross margin -0.52 pct month-on-month to 9.6%, the lowest gross margin in a single quarter in three years.
Management improvements continue to be refined, and the balance ratio is declining year by year. The total expenses of the 2024Q1 company during the period were -6.17% month-on-month to 152 million yuan, and management improvements began to show; the main reason for the decline was the decline in management expenses, which was -28.43% month-on-month to 68 million yuan in Q1. The company's Q1 R&D expenses were -2.70% to 36 million yuan, and still maintained a high level of R&D investment; financial expenses were +023 million yuan to 190 million yuan month-on-month. We believe this is an increase in financial expenses due to increased exchange losses. The company's balance ratio at the end of 2024Q1 was 28.42%, down 7.61/6.54/1.96pct from the end of 2021/2022/2023, respectively, and the capital structure was optimized year by year.
Optimistic about improving the fundamentals of rare earth permanent magnets. Since the price of praseodymium metal bottomed out in late March 2024, the price had rebounded nearly 17% from the bottom as of late April. Considering equipment updates and trade-in actions, supporting measures are expected to continue to be implemented. It is expected that rare earth permanent magnet material stocks and incremental demand will be combined through equipment updates; supply-side overseas mines are expected to continue to weaken, quota growth is expected to slow down, and the fundamentals of the rare earth permanent magnet industry are expected to continue to improve; and the company is expected to fully benefit as a NdFeB giant.
Profit Forecasts, Valuations, and Ratings
The company's 24-26 revenue is estimated to be 77.41/98.18/11.494 billion yuan, respectively, net profit to mother of 1.46/2.96/366 million yuan, EPS 0.12/0.24/0.30, respectively, and corresponding PE 76.61/37.82/30.60 times, respectively. Maintain a “buy” rating.
Risk warning
Demand fell short of expectations; rare earth price fluctuations exceeded expectations; exchange rate fluctuations exceeded expectations.