Key points of investment:
Event: The company released its 2023 annual report and 2024 quarterly report. In '23, the company achieved operating income of 3.99 billion yuan, -5.4% year on year; net profit to mother of 420 million yuan, or -45.7% year on year; net profit after deducting non-return to mother of 250 million yuan, -67.5% year on year. In 2024Q1, the company achieved operating income of 300 million yuan, -65.8% month-on-month; net profit to mother of 290 million yuan, -199.0%. China Rare Earth Group plans to transfer 9.48% of its rare earths holdings to Guangsheng Holding Group free of charge through state-owned equity transfer.
2024Q1: The continued decline in Q1 rare earth prices caused the company to accrue higher impairment losses. 1) Price: The average price of praseodymium oxide in 24Q1 was 383,000 yuan, -22.6% month-on-month, Dysprosium oxide 1.98,000 yuan, -28.8% month-on-month, and the average price of terbium oxide was 5.704 million yuan, -31.6% month-on-month. Heavy rare earth adjustments were more obvious. 2) Profit: Due to the decline in Q1 rare earth prices, the total amount of inventory impairment reserves calculated in Q1 in 2024 was 350 million yuan.
2023: Ganghwa rare earths were successfully injected, and the decline in rare earth prices weighed on the company's performance. 1) Quantity:
In 2023, rare earth ore production volume was 2,384 tons, sales volume +27.6% year over year; rare earth oxide production volume was 3756 tons, +2.5% year on year, sales volume was 3622 tons, -6.1% year on year, inventory volume was maintained at a reasonable level; rare earth metal production volume was 787 tons, +548.3% year on year, sales volume 192.6, and +68.2% year over year. 2) Price: In 2023, the average price of praseodymium oxide was 533,000 yuan, -35.4% year on year, the average price of dysprosium oxide was 2.355 million yuan, -7.4% year on year, and the average price of terbium oxide was 9.247 million yuan, or -32.6% year on year. 3) Profit: The sharp decline in rare earth prices in 23 led to a decline in the company's profitability. The gross profit of the rare earth oxide business was 380 million yuan, accounting for 42.4%, gross margin was 15.6%, -11.0pct; the gross profit margin of the rare earth business was 90 million yuan, accounting for 9.9%, or 8.6%, +0.8 pct year on year; the gross profit margin of the new rare earth mining business was 400 million yuan, accounting for 45.3%, gross profit margin of 78.1%, -3.0 pct year on year; asset impairment loss in 2023 was 124 million yuan.
Ganghwa rare earths successfully injected and enhanced the company's potential. Ganghwa rare earths have been successfully consolidated, and the company added 2,384 tons of mining targets. Xinghua New Materials plans to have a separation capacity of 5,000 tons, while the separation targets for China's rare earths in Dingnan Dahua and Guangzhou Jianfeng in '22 are 4111 tons, and the separation capacity will be greatly increased.
The growth rate of the indicator declined year on year, and the relationship between supply contraction and rare earth supply and demand is expected to be repaired. The first batch of mining targets in 2024 was 135,000 tons, +12.5% /+15,000 tons over the same period. The growth rate is slowing down, and the annual growth rate is expected to be less than 10%. Among them, the China Rare Earth Group's light rare earth index was 40,400 tons, +3.5% /+1,363 tons; the heavy rare earth index was 10.14 million tons, -7.3%/-803 tons. As the group's only listing platform, the company will benefit from the increase in the index.
Profit forecast and investment advice: We revised our rare earth price and sales assumptions. The company's net profit for 24-26 is estimated to be RMB 2.81/6.51 billion (RMB 4.03/495 million yuan 24-25 years ago). In 2024, it corresponds to PE 106.8 times. Considering the acceleration of China Rare Earth Group's integration of China's rare earth resources, high-quality asset injection companies are expected to strengthen and maintain a “buy” rating.
Risk warning
The injection project fell short of expectations; the progress of projects under construction or planned fell short of expectations; downstream demand fell short of expectations; and the growth of rare earth indicators exceeded expectations.