Introduction to this report:

Rare earth prices stabilized, the company's recycled rare earths and magnetic materials subsidiaries achieved profits, and 2024H1 reversed losses year on year. The magnetic materials business plans to expand production by 0.01 million tons/year. Recycled rare earths are dismantled and laid out upstream, and the rare earth and magnetic materials business can be expected to grow.

Key points of investment:

Maintain an “Overweight” rating. According to the company's 2024H1 business situation, we lowered the company's 2024-2025 and additional 2026 net profit forecasts to 1.84 (original 3.78) /2.66 (original 4.12) /0.368 billion yuan, respectively, and the corresponding EPS was 0.32/0.46/0.63 yuan, respectively. According to the average PE value of comparable rare earth and magnetic materials companies in 2025, the company was given 16 times PE in 2025, and the target price was lowered to 7.53 yuan (originally 13.35 yuan), maintaining the “gain” rating.

Rare earth prices stopped falling and stabilized, 24H1 reversed losses, and the performance was basically in line with expectations. 1) With 2024H1, the company achieved operating income of 2.696 billion yuan, a year-on-year decrease of 24%; net profit to mother achieved profit of 2.224 million yuan, which turned a loss into a profit; after deducting non-attributable net profit loss of 83.94 million yuan, the loss narrowed by 64% year-on-year. 2) The reason for turning losses into profits is that market prices for rare earth products have stopped falling and stabilized, and the company's comprehensive utilization business of rare earth resources has developed steadily. Renewable rare earth and magnetic materials business platform subsidiaries Xintai Technology, Zhejiang Zhonghang, and Ganzhou Huazhuo all turned losses into profits over the same period in 2023. 2024H1 made profits of 4.21 million yuan, 5.56 million yuan, and 13.78 million yuan respectively.

2024H1's gross margin of comprehensive utilization of rare earth resources and sales of magnetic materials increased by 3.82% and 5.54%, respectively.

The magnetic materials business has established a new Baotou project, and the recycled rare earth business has an upstream recycling and dismantling layout for waste electric vehicle motors and new energy motors. 1) In terms of the magnetic materials business, the company plans to invest in the construction of the “first phase of a high-performance rare earth permanent magnet material project with an annual output of 0.01 million tons” in the Baotou Rare Earth High-tech Zone in Inner Mongolia, with an estimated total investment of 0.4 billion yuan. The project will be completed at one time to meet the production capacity of 0.02 million tons of high-performance rare earth permanent magnet materials, as well as production equipment with an annual output of 0.01 million tons. It is expected to be completed and put into operation by the end of 2025. 2) In the rare earth business, the company established a holding subsidiary through the recycled rare earth business platform Xintai Technology and Xinhenghui investment to mainly utilize NdFeB permanent magnet materials in waste electric bicycles, waste electric vehicle motors, and waste industrial permanent magnet motors, thereby expanding the source of raw materials and stabilizing the procurement price of raw materials.

The elevator parts division established an Italian subsidiary, and overseas business revenue increased 3% year over year.

Wellman, an elevator parts subsidiary of the company, funded the establishment of overseas Wellman Italy Co., Ltd., with a registered capital of 2 million euros, and Wellman's shareholding ratio is 100%. 2024H1 achieved revenue of 0.122 billion yuan in foreign sales, an increase of 3% over the previous year.

Risk warning: Raw material prices fluctuate greatly, industry policy changes.