Incident: Jinli Hong Kong Technology, a wholly-owned subsidiary of Jinli Permanent Magnet, signed a “List of Terms” with Hastings, an Australian-listed rare earth company, on July 5, 2024. It was agreed that Jinli Hong Kong Technology would subscribe for an additional 19.647 million shares of Hastings common shares at a subscription price of 0.36 Australian dollars/share. The total subscription amount was about 7.07 million Australian dollars (approximately RMB 34.6 million). After the subscription was completed, Jinli Hong Kong Technology's shares accounted for the total share capital of Hastings after the increase 9.8%

As a rare earth producer, Hastings has significant advantages, and the rare earth concentrate produced is of high quality.

As an advanced Australian rare earth mineral producer, Hastings has completed the construction of mining infrastructure on its 100% owned Yangibana rare earth project. The project deposit has a mining life cycle of up to 17 years, and the ore reserves are about 20.9 million tons. The average share of praseodymium in rare earth oxides during the cycle is about 37%, and praseodymium accounts for 52% of rare earth oxides in some regions of the ore body. In terms of production capacity, it is estimated that 37,000 tons of rare earth concentrate can be produced every year after the first phase is completed in the first half of 2026.

Holding shares in Hastings is beneficial to diversifying procurement channels. Neodymium rare earth elements are the main raw materials for manufacturing high-performance NdFeB rare earth permanent magnet materials. With their advantages of good energy efficiency, small size, light weight, and easy precise control, NdFeB rare earth permanent magnet materials are widely used in fields such as new energy vehicles and automobile parts, energy-saving inverter air conditioners, wind power generation, robots and industrial servo motors. As a leading supplier of high-performance rare earth permanent magnet materials in the fields of new energy, energy saving and environmental protection, the acquisition of Hastings is conducive to ensuring the global distribution of rare earth raw materials and enhancing the company's ability to guarantee the global supply of rare earth raw materials, thereby ensuring the company's product delivery capabilities in the fields of humanoid robots and new energy vehicles.

Further enhance the ability to control raw material costs and promote collaboration between the company's upstream and downstream industries. Prices of rare earth raw materials have fluctuated greatly over the past 23 years. The average price in January '23 was 0.8764 million/ton, and the average price in December was 0.5575 million/ton. This strategic acquisition is the company's strategy to respond flexibly to price fluctuations. It helps the company to seize market opportunities through diversification and globalization, further enhance the ability to control raw material costs, and reduce the impact of raw material price fluctuations on the profitability of the permanent magnet business. In addition, it also helps the company accumulate upstream experience and promote the collaborative development of upstream and downstream industries.

Maintain a “Highly Recommended” investment rating. The company is expected to achieve net profit of 0.682, 0.945, and 1.219 billion yuan in 2024-2026, corresponding to price-earnings ratios of 23.1, 16.6, and 12.9 times, which is highly recommended.

Risk warning: Price fluctuations of rare earth products, Yangibana rare earth projects falling short of expectations, macroeconomic risks, etc.