24H1's net profit to mother was -181.59% YoY. In 2024, H1 achieved revenue of 5.438 billion yuan (yoy -36.45%), net profit to mother of 68.517 million yuan (yoy -181.59%), deducting non-net profit of 70.521 million yuan (yoy -351.19%). Among them, Q2 achieved revenue of 2.552 billion yuan (yoy -32.02%, qoq -11.57%) and net profit of 0.147 billion yuan (yoy +2128.67%, qoq +168.22%). We expect the company's 2024-2026 EPS to be 0.30, 0.52, and 0.63 yuan respectively (previous value: 0.42, 0.65, 0.73 yuan in 2024-2026). Comparatively, iFind in 24 had an agreed average PE value of 36.7 times, giving the company 36.7 times PE in 24, with a target price of 11.01 yuan (previous value of 14.92 yuan), maintaining a “buy” rating.

The company's rare earth oxide and rare earth metal production and sales all achieved rapid growth in the first half of the year 24H1. The company achieved rare earth oxide, metal and concentrate production of 14156.74/12549.74/9749.30 tons, +129.74%/+52.37%/-24.72% YoY, and achieved sales of rare earth oxides, metals and concentrates 7843.51/7551.68/16928.76 tons, +67.32%/+20.13%/-27.64% YoY. 24H1's comprehensive gross profit margin was 1.47%, down -3.22pct year on year, of which 24Q2 gross margin was 3.02%, +2.93pct month-on-month. Furthermore, 24H1's total period expense ratio was 2.26%, yoy+0.78pct.

Rare earth prices stabilized in the second quarter, and the company's 24Q2 performance had an increase in sales during the reporting period, but due to factors such as a sharp year-on-year drop in market prices for major rare earth products, relatively weak market prices for zirconium and titanium products, and lagging changes in the cost of raw materials such as imported rare earth concentrates and seaside sand, the average sales price and gross margin of the company's main products fell sharply compared to the same period last year, causing the company's profit for the reporting period to decline compared to the same period last year. The company's 24Q2 performance reversed its losses. We think it was mainly because the average price of rare earths stopped falling and stabilized in the second quarter, and the company's gross margin increased 2.93 pct month-on-month in the second quarter.

The company made up for shortcomings in rare earth smelting and front-end resources through mergers and acquisitions

According to an announcement on August 21, Chenguang Rare Earth, a wholly-owned subsidiary of the company, signed an “Equity Transfer Agreement” with NEO International to acquire 100% of the shares in Jiangyin Jiahua and Zibo Jiahua. Both have rare earth smelting and separation targets, and corresponding production capacity is 3800 tons REO/year and 5,500 T REO/year, respectively. According to an announcement on August 9, the delivery conditions agreed in the agreement for the company's wholly-owned subsidiary Chenguang Rare Earth to acquire 100% of SRUL's shares have been fulfilled. Chenguang Rare Earth has completed payment of the amount agreed in the agreement, the parties to the transaction have completed the signing of the delivery documents, and the company will push for the completion of procedures such as share transfers in the future. SRUL holds 84% of the shares in NyatiMineral Sands Limited. The company holds four heavy sand projects, including Fungoni, Tajiri, Sudi, and Bagamoyo. The first two have obtained mining licenses.

Risk warning: Downstream demand in the industry falls short of expectations, and increased industry competition has put pressure on product prices.