Event: On October 24, 2024, the company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 5.014 billion yuan, a year-on-year decrease of 0.7%, and realized net profit to mother of 0.197 billion yuan, a year-on-year decrease of 60.17%. Looking at 2024Q3 in a single quarter, the company achieved operating income of 1.653 billion yuan, a year-on-year increase of 1.99%, a year-on-month decrease of 9.46%, and realized net profit to mother of 77.21 million yuan, a year-on-year decrease of 52.24% and a year-on-year increase of 329.29%. The results are in line with market expectations.

Net profit for Q3 2024 decreased by 52.24% year over year and increased 329.29% month over month. The main reason for the change in net profit is a year-on-year decrease of 0.087 billion yuan in Q3 gross profit and a month-on-month increase of 0.075 billion yuan. Price: The sharp year-on-year decline in rare earth prices dragged down performance. In the first three quarters of 2024, the average tax-inclusive price of praseodymium metal was 0.4752 million/ton, down about 28.69% from the average price of 0.6664 million yuan/ton in the same period in 2023). Considering the price lag of one quarter, the sales price of Q3 products was related to the raw material price in Q2. 2024Q2, the average tax-containing price of praseodymium metal was 0.4712 million/ton, down 19.8% year on year and 0.5% month on month. Volume: Production and sales increased significantly year over year. In the first three quarters of 2024, the company relied on sufficient on-hand orders to actively increase its market share. During the reporting period, the company's capacity utilization rate exceeded 90%, and the production and sales volume of high-performance magnetic products increased by about 40% year-on-year. According to the 40% year-on-year growth rate, the company produced 0.0154 million tons of finished NdFeB products in the first three quarters of 2024, and 0.0054 million tons in a single Q3, an increase of 26.5% over the previous year. Profit: Gross margin increased month-on-month. In the first three quarters of 2024, the company's gross margin was 10.03%, of which the gross margin for single Q3 was 12.81%, up 5.31 pcts from month to month, down 5.62 pcts year on year. The year-on-year decline was mainly due to falling prices and increased industry competition. The month-on-month increase was mainly due to price lock orders signed by individual customers when the prices of rare earth raw materials were relatively high. Meanwhile, the company's Q3 net interest rate was 4.83%, up 3.81 pct from month to month, down 5.23 pct year on year.

Investment advice: ① Rare earth prices have rebounded steadily recently. On August 20, the second batch of rare earth indicators for 2024 was released. The annual rare earth indicators increased by only 6% year on year, a sharp drop compared to the 25% and 21% growth rates in 2022 to 2023, and the “Rare Earth Management Regulations” are being implemented soon, and the overall supply side is tightening. ② Continued expansion of additional production capacity. By the end of 2023, the company's high-performance NdFeB permanent magnet material blank production capacity reached 0.023 million tons. The Baotou Phase II 0.012 million ton annual production capacity project, the Ningbo 3,000 ton/year high-end magnetic material and 0.1 billion magnetic module production capacity project, and the Ganzhou University Energy-saving Motor Magnetic Base Project are under construction. The company expects to build a 0.038 million ton blank production capacity production line by the end of 2024. ③ The company continues to invest in R&D, actively lays out the field of magnets and magnetic components for humanoid robots, and constructs a new growth curve. Mexico's project to build a new production line with an annual output of 1 million units/set of magnetic components continues to advance, extending from the original material-side products downstream to magnetic components. After the project is completed and put into operation, it will help enhance the company's market competitiveness in the fields of humanoid robots and new energy vehicles.

Investment advice: Considering the decline in rare earth prices, we lowered the company's profit forecast. We expect the company to achieve net profit of 0.305/0.484/0.645 billion yuan in 2024-2026, and EPS of 0.23/0.36/0.48 yuan/share, respectively. The PE corresponding to the closing price on October 25 was 74/46/35X, respectively, maintaining the “recommended” rating.

Risk warning: rare earth prices are falling, industry competition is intensifying, humanoid robot research and development progress falls short of expectations, etc.