Net profit attributable to mother in '23 was -79.12% YoY, maintaining the buying rating
In '23, the company achieved revenue of 17.877 billion yuan (yoy +6.68%) and net profit of 333 million yuan (yoy -79.12%); of these, 23 Q4 had revenue of 4.77 billion yuan (yoy +22.98%, qoq +4.86%) and net profit of 175 million yuan (yoy +61.23%, qoq +135.19%). We believe that the company's future production and sales will grow rapidly, but the low price of rare earth will have an impact on the company's product gross profit. Therefore, the company's EPS is expected to be 0.48/0.65/0.73 yuan in 24-26 (the previous value was 0.43/0.68 yuan in 24-25). Comparatively, the company Wind unanimously expected the average value of 2024PE to be 25.1X. Considering the company's future production capacity release, the company was given 27X PE (2024E), corresponding to a target price of 12.96 yuan (previous value of 12.61 yuan), maintaining a “buy” rating.
The company's profit declined in '23, and production and sales growth supported the company's rare earth oxides/rare earth salts and rare earth metals production in '23 at 19148.99 tons/45095.75 tons/17657.42 tons, yoy +55.59%/+42.88%/+43.45%, and sales volumes were 17875.09 tons/16388.23 tons/14769.73 tons, yoy +63.64%/108.92%/55.21%, respectively.
In terms of profit, the company's comprehensive gross profit margin and net profit margin in '23 were 4.35%/2.22%, respectively, down -12.30pct/-7.60pct year-on-year, respectively. In terms of rates, the cost rate for the total period of 23 years was 1.70%, yoy-3.73pct, and the cost control effect was remarkable.
The company's domestic production expansion is progressing steadily, and overseas mining side investment is simultaneously accelerating the company's domestic and overseas production capacity expansion. It plans to achieve a smelting and separation capacity of more than 60,000 tons/year, rare earth metal processing capacity of 30,000 tons/year, and a comprehensive recycling capacity of rare earth waste 10,000 tons/year by 2025. In terms of projects under construction, projects such as the Quannan 3,300 tons/year rare earth oxide project, the Huichang 3,000 tons/year fluorine new material project, and Baotou 6,000 tons of rare earth metal alloys are all scheduled to be completed and put into operation in 2024. Overseas, the company completed the subscription for 9.9% of Australian mining company VML shares in December 2023. At the same time, the company and VML agreed to acquire up to 75% of VML's interest in the Wigu Hill project. According to the company's disclosure, the Wigu Hill project is a light rare earth element deposit located in Tanzania. The resource volume is about 3.3 million tons, and the average grade of light rare earths is 2.6%.
The supply-side growth rate has slowed, and signs of recovery in new energy and traditional downstream demand highlight that since the beginning of '24, NEV production schedules have maintained a high growth rate driven by price cuts. According to data from the Association of Automobile Manufacturers, sales of new energy vehicles nationwide were 2.09 million units in the first quarter of '24, reaching a year-on-year growth rate of 31.78%, maintaining a high level of prosperity. At the same time, demand for air conditioning and wind power experienced a marked recovery in the first quarter. According to data from the National Bureau of Statistics, the country's cumulative production of air conditioners reached 68.78 million units in the first quarter, reaching a year-on-year growth rate of 16.5%, and the total installed capacity of wind power in the first quarter increased 21.5% year-on-year. Downstream demand is picking up in many ways, compounded by a slowdown in supply-side growth and a steady recovery in prices. We believe that the boom in the rare earth industry is expected to stop falling and pick up, and corporate profits will follow suit.
Risk warning: The industry's supply growth rate exceeded expectations, and downstream industry demand fell short of expectations.