This report is read as follows:

Guangsheng Nonferrous is the target of scarce heavy rare earths, and the closure of rare earth mines in Myanmar has reduced the supply of heavy rare earths by nearly 30%, and the company will fully benefit from the rising price of heavy rare earths. For the first time, the coverage gives a neutral rating.

Main points of investment:

Give a neutral rating for the first time. Guangsheng Nonferrous has scarce heavy rare earth mining quotas and back-end smelting capacity, which will fully benefit from the rising prices of heavy rare earths. It is estimated that the EPS for 2019-2021 will be 0.38 yuan per share, and the PE for rare earth companies will be 88X in 2019. Considering that Guangzhou Nonferrous has scarce heavy rare earth assets, it will be given a certain valuation premium and 94X PE in 2019 will be given a target price of 35.72 yuan, giving it a neutral rating for the first time.

The company benefits from the increase in the price of heavy rare earths. Guangsheng Nonferrous and its trusteeship enterprises have a total of 2700 tons of heavy rare earth mining quota (accounting for 14% of the national heavy rare earth mining quota) and 5594 tons of rare earth smelting separation quota (accounting for 5% of the national quota). China basically controls the global supply of heavy rare earth minerals, and Guangsheng Nonferrous assets has a certain strategic position; as the supply of rare earth minerals in Myanmar shrinks this year, the supply of heavy rare earths has shrunk by nearly 30%. The price of dysprosium oxide, a heavy rare earth, has risen 65 per cent from the bottom of the year to 1.9 million per tonne, and Guangsheng's profits will benefit greatly.

It is proposed to reorganize and acquire copper mining companies to improve future profits. Due to the low prices of rare earth and tungsten, the company's profitability is weak; the company plans to restructure and acquire Dabaoshan, a polymetallic mine, which is rich in copper and sulfur resources, with an annual production capacity of 600000 tons of iron ore and 3600 tons of copper metal. This transaction will help to increase the new profit growth points of listed companies and enhance the company's profitability in the future.

Catalyst: rising prices of rare earths

Risk hint: restructuring and acquisition of Dabaoshan Company is not as good as expected.