Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, it achieved operating income of 5.014 billion yuan, -0.7% YoY; realized net profit to mother of 0.197 billion yuan, -60.2% YoY; and deducted non-net profit of 0.089 billion yuan, or -79.6% YoY.

Among them, 24Q3 achieved revenue of 1.653 billion yuan in a single quarter, +1.99% year over month; realized net profit of 0.077 billion yuan, or -52.24% year on year, +329.29% month on month; realized deducted non-net profit of 0.055 billion yuan, -63.25% year on year and +484.87% month on month.

Volume increases and price decreases, putting pressure on the results of the first three quarters:

Volume: In the first three quarters of 2024, the company relied on sufficient on-hand orders. 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;

Price: In the first three quarters of 2024, the average market price of the company's core raw material, praseodymium, was 0.478 million/ton, down 27.90% year on year, driving down the sales price of the company's products. As a result, the company's revenue fell 0.7% year on year;? Profit: In the first three quarters of 2024, the company's gross margin was 10.03%, a year-on-year decrease of 6.6 pcts, due to factors such as lagging changes in raw material costs and increased competition in the industry.

Earnings recovered month-on-month in a single quarter. Price-locked orders signed by individual customers when prices of rare earth raw materials were relatively high have been partially implemented. The gross margin for 24Q3 was 12.81%, up 5.31 pcts from month to month. As rare earth prices pick up, the company's profit is expected to recover further.

The cost rate remained stable during the period. The total cost for the 24-year Q3 period was 0.122 billion yuan (-0.35% YoY, -0.33% month-on-month), and the cost rate for the period was 7.40% (-0.17pcts YoY, +0.68pcts month-on-month). Specifically, the management fee rate was 2.91% (+0.83pcts YoY, +1.35pcts month-on-month), and the R&D expenses rate was 4.67% (-0.37pcts YoY, +0.39pcts month-on-month).

Waiting for the humanoid robot market to expand. The company plans to have a magnetic material production capacity of 40,000 tons in 25 years, and is also planning to invest in the construction of a “1 million magnetic module production line project” in Mexico. It is currently progressing steadily. With the expansion of the humanoid robot market, the company is expected to fully benefit.

Profit forecast and investment suggestions: We assume that the 2024-2026 magnetic material shipments will be 0.027, 0.033, and 0.038 million tons (rough caliber), respectively. Considering industry competition and the impact of high-priced inventory on profits, the net profit due to the reduction of the company was $3.88, 5.54, and $644 million, respectively (prior net profit forecast values for 24-26 were 6.94, 8.51, and 999 million, respectively), according to the market value of 24.1 billion billion at the close of October 28, and the corresponding PE 62.2, 43.6, 37.5X, maintaining the company's “buy” rating.

Risk warning: Risk of product price fluctuations; project construction progress falling short of expectations; sales of new energy vehicles falling short of expectations; demand estimation deviations and delays in the use of public information in research reports; profit forecasts fall short of expectations due to changes in core assumptions; there is a risk that public data used in research reports will not be updated in a timely manner, etc.