occurrences

On August 29, the company released its 2024 semi-annual report. 24H1 achieved revenue of 12.99 billion yuan, -21.19% YoY; net profit to mother was 0.045 billion yuan, -95.70% YoY. 2Q24 revenue was 7.228 billion yuan, +25.45% month-on-month, and -0.33% year-on-year; net profit to mother was -0.007 billion yuan, which turned into losses both month-on-month and year-over-year.

reviews

Accrued impairment puts pressure on performance. 2Q24 The company's sales volume increased, with sales volume of the main products rare earth oxides, rare earth metals and magnetic materials, respectively.

+60.09%/+18.93%/+51.32% to 10725/9194/16684 tons. Due to increased sales volume, 2Q24 gross profit +34.47% month-on-month to 0.593 billion yuan, and gross margin +0.55PCT to 8.20% month-on-month. Although the increase in sales led to a recovery in gross profit levels, the 2Q24 praseodymium oxide price remained flat, at -20.88% month-on-month and year-on-year, respectively, at 0.3811 million/ton. As a result of the price drop, Q2 calculated a loss of 0.17 billion yuan, an increase of 0.205 billion yuan over the previous month; of these, preparations for the inventory price drop were 0.076 billion yuan.

Continue to deepen cost reduction and efficiency. The company's expenses during the 2Q24 period were -12.39 pct to 0.304 billion yuan, and the management fee rate was -1.82 pct to 4.21% month-on-month; of these, management and financial expenses were -2.20%/-10.87% month-on-month to 0.222 billion yuan and 41 million yuan, respectively. Due to the reduction in the company's expenditure on materials in R&D, 2Q24 R&D expenses were -56.92% month-on-month to 0.028 billion yuan.

The construction of new projects continues to advance. In order to accelerate the green smelting upgrade project, the company increased its capital by 2 billion yuan to the construction entity Huamei Company. The company invested 0.3 billion yuan to establish a wholly-owned subsidiary to begin construction of a renewable resource landfill project. In addition, the company is speeding up the construction of its subsidiary Jinmeng rare earth NdFeB waste recycling project to increase production capacity for smelting, separation and waste recycling.

Policies catalyze a slowdown in superposition quotas and focus on upward opportunities at the bottom of the sector. The quota growth rate dropped significantly to 6% in 2024. The introduction of the “Rare Earth Management Regulations”, a supply-reform policy, is expected to further limit supply, and the “two new” actions will increase to stimulate demand. In the rare earth sector currently at the triple bottom of “price, inventory, and valuation,” I am optimistic about the chances of a recovery at the bottom of the rare earth sector. Currently, prices have rebounded. After the “Administrative Regulations” officially came into effect (October 1, 2024), combined with the traditional peak season for rare earths, Q4 prices were stronger. As a light rare earth leader, the company is expected to fully benefit from rising prices.

Profit Forecasts, Valuations, and Ratings

The company's 24-26 revenue is estimated to be 29.829/36.062/40.482 billion yuan, respectively, net profit to mother 0.852/2.116/3.108 billion yuan, EPS 0.24/0.59/0.86 yuan, respectively, and corresponding PE 70.69/28.48/19.39 times, respectively. Maintain a “buy” rating.

Risk warning

Raw material prices fluctuated; demand fell short of expectations; project progress fell short of expectations.