Incident: In 2023, the company's net profit to mother was 330 million, -79% year-on-year, after deducting non-net profit of 270 million yuan, -83% year-on-year, and the company's net profit to mother in the first quarter of 2024 was 216 million, -379% year-on-year.

The company's rare earth sales continued to expand, and falling rare earth prices dragged down performance. 1) The company achieved a significant increase in production and sales of various rare earth products. In 2023, the company's rare earth oxide/rare earth salt/rare earth metal production was 19149/45096/17657 tons, respectively, +55.6%/+42.9%/+43.5% compared to the same period, with sales volumes of 17875/16388/14770 tons, +63.6%/108.9%/55.2% year-on-year. Additional production capacity continued to be released with the company, and production and sales of major products increased significantly year-on-year. 2) The decline in rare earth prices dragged down the company's performance: the average annual sales price of praseodymium oxide was about 530,000 yuan/ton in 2023, down about 36% year on year, causing damage to the company's profitability. The gross margin/net margin in 2023 was 4.35%/2.22%, down 12.3 pct/7.6 pct year on year. 3) 2024Q1's losses are still mainly affected by rare earth prices. In terms of production and marketing, the company's rare earth oxide/rare earth salt/rare earth metal production was 4599/7766/5433 tons, respectively, +75%/-60%/+35%, and sales volume was 2560/6171/3338 tons, respectively, -25%/+98%/+19%; in terms of price, the average price of Q1 praseodymium oxide fell to 380,000 yuan/ton, -43% year-on-month, and -22% month-on-month, causing the company's Q1 gross margin to drop further to 0.1%, while extracting asset impairment losses of 1.34.

Actively promote the dual rare earth business layout at home and abroad, and wait for rare earth prices to rise steadily. 1) Actively expand overseas resources: In 2023, the company acquired 9.99% of the shares of an important Australian metals company, with a total resource volume of about 2.84 million tons of REO; Peak's Tanzania Ngualla rare earth project invested by the company in April 2023 obtained a mining license, completed front-end design work, and is expected to be put into operation in early 2026; 2) Continued expansion of production capacity such as smelting and recycling: The company plans to guarantee various rare earth resources and reach 6 in 2025 Over 10,000 tons/year, metal processing capacity reached 30,000 tons/year, rare earth waste recycling capacity reached 10,000 tons/year, and seaside sand processing capacity reached 2 million tons/year. In the future, the rare earth industry will still have an excellent supply and demand pattern. On the one hand, domestic indicators are strictly controlled and overseas growth is low, leading to a relatively limited supply of rare earths. On the other hand, new-energy vehicles, industrial motors, robots, etc. downstream of rare earths are still expected to bring a large increase in demand in the future, waiting for rare earth prices to rise steadily in the future.

Profit forecast and investment advice: The company's net profit is expected to be 4.5/70/860 million in 2024-2026. Considering the good layout of the company's rare earth industry chain, the company is given an “increase in wealth” rating.

Risk warning: rare earth prices fluctuate, domestic indicators exceed expectations, profit forecasts fall short of expectations.