occurrences

On August 21, the company released its 2024 semi-annual report. 2024H1 achieved revenue of 3.289 billion yuan, or -23.58% year over year; net profit to mother was -0.072 billion yuan, -144.48% year over year.

2024Q2 achieved revenue of 1.637 billion yuan, -0.89% month-on-month and -21.62% year-on-year; net profit to mother was 0.026 billion yuan, reversing losses month-on-month, or -57.07% year-on-year.

reviews

The slight recovery in raw material prices compounded stronger production and sales, reversing losses in Q2. Q2 The prices of the company's main raw materials, praseodymium alloy, prosium metal, and terbium metal remained flat, +5% and +10% to 0.4773 million/ton, 2.5702 million/ton, and 0.77,000 yuan/kg, respectively. Overall, the company's Q2 raw material price level increased month-on-month compared to Q1, and the company's asset impairment losses added back 0.016 billion yuan. Since Q2 production was more vigorous, the company's Q2 gross margin was +0.64PCT to 10.26% month-on-month, and gross profit was +0.009 billion yuan to 0.168 billion yuan month-on-month.

Reduce costs and increase efficiency without increasing R&D investment, and the capital structure continues to be optimized. The total expenses of the 2024Q2 company during the period were -5.26% to 0.144 billion yuan, and management improvements continued to be evident; the main reason for the decline was that sales expenses and financial expenses continued to decline. Sales expenses in Q2 were -17.95% month-on-month to 0.032 billion yuan, and financial expenses fell 0.017 billion yuan month-on-month to -0.008 billion yuan. Against the backdrop of overall pressure on the industry and continuous promotion of the company's cost reduction and efficiency, the company's Q2 R&D expenses were +16.67% month-on-month to 0.042 billion yuan, and the high level of investment continued. At the end of 2024H1, the company's balance ratio was 25.83%, down 2.59pct from 24Q1; after peaking in 2021, the company's balance ratio declined year by year in 2021-2023, and the capital structure was optimized year by year.

Focus on upward opportunities at the bottom of the rare earth permanent magnet sector. On the demand side, the “Two New” initiatives have been upgraded, increasing the subsidies for the purchase (scrapping and renewal) of new energy passenger cars and fuel passenger vehicles to 0.02 million yuan and 15,000 yuan respectively; purchasing household appliances with energy efficiency level 2 or above will be given a 15% subsidy on the product sales price. Automobiles and home appliances, as important sectors of rare earth demand, are also expected to benefit from the support of the trade-in policy. On the supply side, the significant slowdown in domestic quota growth and the implementation of the “Rare Earth Management Regulations” will all slow supply growth. Improved rare earth supply and demand are compounded by low inventories in the industry, and rare earth prices are expected to rise. And permanent magnet companies, as processing links, are also expected to benefit from rising prices of upstream raw materials.

Profit Forecasts, Valuations, and Ratings

The company's 24-26 revenue is estimated to be 7.693/9.651/11.481 billion yuan, net profit to mother is 0.111/0.173/0.353 billion yuan, EPS is 0.09/0.14/0.29 yuan, respectively, and the corresponding PE is 89.01/57.15/28.00 times, respectively. Maintain a “buy” rating.

Risk warning

Demand fell short of expectations; rare earth price fluctuations exceeded expectations; exchange rate fluctuations exceeded expectations.