On April 26, the company released its 2024 quarterly report. 1Q2024 achieved revenue of 1,536 billion yuan, -6.18% month-on-month, and -6.93%; net profit to mother was 102 million yuan, +46.47% month-on-month, and -42.93% year-on-year; net profit without return to mother was 0.25 million yuan, -54.55% month-on-month and -80.12% year-on-year.

The decline in average product prices dragged down revenue, and delayed order execution lowered gross profit margins. The average price of the 1Q2024N52 NdFeB market was -15.91% to 185 yuan/kg; considering the company's current production capacity construction progress and assuming that production and sales are basically flat, we estimate that the company's Q1 sales volume may be flat, and the average price of the company's products is -5.72% month-on-month to 318,900 yuan/ton. Since the company has purchased two rare earth raw materials but the contract has not yet been executed in Q1, the combined cost fluctuates greatly, thus affecting the company's gross margin caused by 1Q2024 about 4 pcts. We estimate that the unit cost of the company's magnetic products was -1.66% to 286,400 yuan/ton, and the unit gross profit was -30.98% month-on-month to 32,500 yuan/ton. As a result, the company's overall gross profit for 1Q2024 was -35.02% month-on-month to 154 million yuan, and gross margin -4.45pct month-on-month to 10.03%.

The rate dropped significantly during the period, and the capital structure continued to be optimized. The 1Q2024 company's period rate was -2.42pct to 7.29% month-on-month; of these, the sales rate was -0.14pct to 0.72% month-on-month, the management fee rate was -1.18pct to 2.67% month-on-month, and the financial rate was -0.06pct to -0.98% month-on-month; the R&D rate was 4.88pct, -1.04pct month-on-month, +0.52 pct year-on-year, respectively. Considering seasonal factors, the company still maintained a high investment in R&D. At the end of March 2024, the company's balance ratio was 38.40%, down 12.58pct, 1.11pct, and 2.09pct respectively from the end of 2021-2023, and the capital structure continued to be optimized.

Production capacity continues to expand, focusing on businesses related to humanoid robots. The company's rough production capacity is 23,000 tons, and the capacity utilization rate has increased to more than 90%. As projects of 12,000 tons in Baotou II and 30,000 tons in Ningbo continue to advance, it is expected that a production line with a rough production capacity of 38,000 tons/year will be built by the end of 2024; the company plans to build a production capacity of 40,000 tons by 2025. The company is actively expanding its business in emerging fields such as humanoid robots.

The company's 24-26 revenue is estimated to be 76.25/89.16/10.860 billion yuan, respectively, net profit to mother is 6.52/8.26/1,057 million yuan, EPS 0.49/0.61/0.79 yuan, respectively, and the corresponding PE is 30.62/24.19/18.89 times, respectively. Maintain a “buy” rating.

Risk warning

Demand fell short of expectations; rare earth prices fluctuated; supply of magnetic materials exceeded expectations.