Key points of investment

Incident: The company released its 2024 mid-year report, putting pressure on performance. The company's revenue for the first half of 2024 was 3.362 billion yuan, -2% year over year; net profit to mother was 0.12 billion yuan, -64.02% year over year; net profit after deducting non-return to mother was 0.034 billion yuan, -88.18% YoY.

In the first half of 2024, the company's profits were under pressure in the short term due to factors such as a sharp drop in the price of rare earth raw materials, delays in execution of individual price lock orders, and increased competition in the industry. According to data released by Asia Metal Network and the China Rare Earth Industry Association, the average price from January to June 2024 was 0.4719 million yuan/ton, down about 32.80% from the average price of 0.7022 million yuan/ton in the same period in 2023. The company achieved net profit of 119.6772 million yuan in the first half of the year due to factors such as lagging changes in raw material costs and delays in the execution of price lock orders signed by individual customers when the price of rare earth raw materials was relatively high, compounded by increased competition in the first half of the year, a decrease of 64.02% over the previous year.

The production and sales volume of the company's products has increased dramatically. In the first half of 2024, along with the gradual implementation of the company's new construction projects, the company's capacity utilization rate exceeded 90%, the production and sales volume of high-performance magnetic products increased by more than 40% year-on-year, and the market share increased steadily.

Demand for rare earth permanent magnets is growing rapidly, and the company is expected to seize the opportunity to rapidly expand production and benefit from market growth. According to Frost & Sullivan's report, global consumption of high-performance rare earth permanent magnet materials increased from 0.0475 million tons in 2018 to 0.1025 million tons in 2023, with a compound annual growth rate of about 16.6%. Global consumption of high-performance rare earth permanent magnets will reach 0.2271 million tons by 2028, with a CAGR of 17.2% from 2023 to 2028. The company's NdFeB blank production capacity is expected to expand to 40,000 tons by 2025. In addition, it is also planning to invest in the construction of a “new production line project with an annual output of 1 million units/magnetic module in Mexico”, which is expected to benefit from market growth in the future.

Profit forecast: Due to the sharp drop in rare earth prices in the first half of the year, we lowered the company's profit forecast. The company's total revenue for 2024-2026 is 6.507/8.785/10.825 billion yuan, respectively, and net profit to mother is 3.92/0.628/0.906 billion yuan, respectively, corresponding to 36.20/22.58/15.67 times PE in 24-26. It is predicted that the company's performance will increase with the release of production capacity. As an industry leader, the company is leading in technology, expanding production rapidly, and maintaining a “buy” rating.

Risk warning: competition in the NdFeB magnet industry intensifies; the company's production capacity construction falls short of expectations; the company's technological innovation capability falls short of expectations