Incident: The company announced its quarterly report, achieving revenue of 1,536 billion yuan, a year-on-year decrease of 6.93%; net profit to mother of 102 million yuan, a year-on-year decrease of 42.93%; after deduction, it was 25 million yuan, a year-on-year decrease of 80.12%.
The decline in rare earth prices+the impact of raw material procurement dragged down Q1 performance. 1) Decline in rare earth prices:
The prices of 2024Q1, the main rare earth raw materials are on a downward trend. Take the metal praseodymium as an example. According to data published by Asia Metal Network and the China Rare Earth Industry Association, etc., the average price for January to January 2024 was 473,700 yuan/ton, down about 42.03% from the average price of 8171,000 yuan/ton in the same period in 2023. Furthermore, the average price in January 2024 was 504,500 yuan/ton, and by March 2024, the average price dropped to 431,900 yuan/ton. Prices of rare earth raw materials have fluctuated greatly since the beginning of the year. Due to short-term transmission differences between costs and sales prices, there will be a certain impact on gross margin decline. 2) The price lock contract was not executed: The company implemented a strategy of sales to determine production to procure the rare earth raw materials needed, and the company's inventory issuance was calculated using the weighted equalization method. 2024Q1, due to the fact that price lock contracts for some customers have not been executed, the cost of raw materials calculated using the weighted average method is too high, resulting in a decrease in gross margin. 3) High capacity utilization rate:
According to the investor relations activity records announced by the company, the company's newly built production capacity was gradually released, and the capacity utilization rate exceeded 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. It is planned to build a production capacity of 40,000 tons of high-performance rare earth permanent magnet materials and an advanced magnetic component production line by 2025. 4) Promising industry prospects: Orders from the company's major customers for NEVs and auto parts have remained stable, and the company's products are used by the world's top ten NEV manufacturers to produce drive motors. In March 2024, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which proposes implementing four major actions: equipment renewal, consumer goods trade-in, recycling, and standard upgrading. Rare earth permanent magnet materials have an indispensable central position in promoting high-quality development such as intelligent manufacturing and green manufacturing.
Profit forecast: Considering the pace of the company's new production capacity, and the company's production capacity is determined by sales, and the certainty of growth is strong, we expect the company's EPS to be 0.49, 0.61, and 0.83 yuan respectively in 2024-2026, and PE will be 31, 25, and 18 times, respectively, maintaining a “buy” rating.
Risk warning: Product prices and gross margin continue to decline due to declining industry demand and increased competition.