Event: The company publishes its 2024 semi-annual report. In 2024H1, the company achieved revenue of 2.7 billion yuan, a year-on-year net profit of 2.22 million yuan, a year-on-year net profit of +101.20%, turning a loss into a profit over the previous year; net profit deducted from non-mother of -0.084 billion yuan, or +63.52% year-on-year. Market prices of rare earth products stopped falling and stabilized, the company's comprehensive utilization business of rare earth resources developed steadily, and profits turned losses into profits. 2024Q2 achieved revenue of 1.49 billion yuan in a single quarter, -15.8% year-on-year, and +22.9% month-on-month; realized net profit of 29.95 million yuan to mother, turning losses into profits year-on-month.

Low rare earth prices stabilized, and 2024H1 reduced preparations for falling inventory prices. The market price of rare earth products stopped falling and stabilized, and the company's comprehensive utilization business of rare earth resources was operating and developing steadily. The 2024H1 asset impairment loss was +21.33 million yuan, which is a preparation for the inventory price drop calculated as a reduction. According to business agency data, the average price of 2024H1 praseodymium oxide was 0.384 million yuan/ton, down 33.2% from 0.575 million/ton in 2023H1 and 21.6% month-on-month from 0.49 million/ton in 2023H2. On a quarterly basis, the average price of 2024Q2 praseodymium oxide in a single quarter was 0.382 million yuan/ton, which is basically stable from 0.386 million yuan/ton in 2024Q1. The company operates a comprehensive utilization business of rare earth recyclables, that is, it uses NdFeB recycling materials and fluorescent powder waste to produce high-purity rare earth oxides. Its products can be widely used in high-tech fields such as NdFeB magnetic materials, computers, communication equipment, and three-color fluorescent powder. Inventory price declines brought about by a sharp year-on-year decline in raw material prices put pressure on the company's performance, and 2024H1 has improved.

The gross margin of 2024H1's comprehensive utilization business of rare earth resources was -1.46%, up 3.82 percentage points from 2023H1; the gross margin of the magnetic materials sales business was 5.31%, up 5.54 percentage points from 2023H1.

Profit forecast. We focus on the profit model of the company's rare earth business. Through follow-up research, we expect the company's revenue for 2024-2026 to be 54, 88, and 9.2 billion yuan, respectively, and estimated net profit of 1.0, 3.0, and 430 million yuan, corresponding to the closing price of PE on August 29, 2024, which is 35.12x, 11.55x, and 8.08x, respectively. Considering that rare earth prices are in a low position and the company's performance is under pressure, the core is to observe subsequent rare earth prices and wait for the market to rise, and we maintain the “increase” rating.

Risk warning: rare earth prices have dropped sharply; demand for NdFeB magnets falls short of expectations; the company's production capacity is falling short of expectations