Key points of investment:
Four dimensions build the company's core competitiveness. The company is a leading manufacturer in the high-performance NdFeB industry. It has been deeply involved in the field of NdFeB magnets for more than 20 years and has built core competitiveness in four dimensions. 1) Resource advantages: The company built a factory in Baotou, the most important light rare earth production area in the world, cooperated with China's leading overseas geological exploration resources to develop rare earth mines in Africa, and has obtained prospecting rights for the Kombuwa rare earth mine in Zambia.
2) Technical advantages: After years of technical accumulation, the company has mastered a number of core technologies and processes for high-performance NdFeB magnets, including rare earth product formulation, grain boundary diffusion, and heavy rare earth reduction control. 3) Scale advantage: It currently has a production capacity of 21,000 tons/year for NdFeB blanks, including 10,000 tons/year for crystal boundary diffusion. The new production capacity of 15,000 tons in Baotou under construction is expected to be put into operation in mid-2024, and the long-term production capacity is planned to reach 36,000 tons. 4) Track and customer advantages: The company continues to develop breakthroughs in the field of new energy vehicles, consolidate and enhance its leading edge in the field of consumer electronics and servo motors, and actively lays out humanoid robot tracks. Customers include industry leaders such as BYD, mainland Europe, Schaeffler, Gree, Panasonic, and Huichuan Technology, to work with customers to seek development opportunities in the new era.
Rare earth prices have become rational, and profitability has been restored. Based on the mine port size calculation, we predict that the supply of praseodymium will exceed demand in 2023, but as the target growth rate slows down, the excess situation will be mitigated. At the same time, considering deviations in target tasks and actual production and unstable rare earth ore imports, actual supply is slightly smaller than theoretical supply. It is expected that supply and demand will maintain a tight balance between 2024 and 2025. Supply elasticity mainly depends on the progress of the 10,000-ton neodymium expansion of the Lynas separation plant in Australia. The price of praseodymium oxide is expected to fluctuate and decline in 2023, stabilize in 2024, and finally rise slightly in 2025, but it will be difficult to reach the 2022 high. The company's profitability is highly correlated with the level of fluctuation in rare earth prices. When prices stabilize and rise slightly, the company's profitability is expected to recover.
The fields of new energy, energy saving and environmental protection have become the main marginal increase in demand, and long-term humanoid robots are expected to relay high demand growth. The rare earth permanent magnet industry is shifting from supply-driven to demand-driven. In the context of dual carbon and global economic recovery, new energy and energy saving and environmental protection fields such as new energy vehicles, wind power generation, and energy-saving air conditioning are currently contributing major marginal increases, and humanoid robots are expected to continue to drive high demand growth after long-term large-scale application. According to our estimates, the total global demand for high-performance NdFeB in 2023-2025 is 13.1%, and the industry is expected to continue to grow at a high rate. Among them, the NEV sector has a CAGR of 23.1%, contributing the main increase.
Profit forecast and investment advice: The CAGR for the company's revenue and net profit to mother is expected to be 10.6% and 19.0%, respectively, in the year 2022 to 2025. Considering the company's downstream structure optimization and broad room for growth, the company was given 23.0 times PE in 2024, corresponding to a market value of 10.1 billion yuan, corresponding to a target price of 9.06 yuan/share. For the first time, coverage was given, and a “buy” rating was given.
Risk warning: downstream demand falls short of expectations; customer expansion falls short of expectations; projects under construction by the company fall short of expectations; risk of fluctuations in raw material prices; industry competition increases risk.