Incident: The company achieved revenue of 2.54 billion in the first half of 2024, or -19.6% year-on-year, and achieved net profit of 0.15 billion yuan, a year-on-year decrease of 37.9%, after deducting 0.13 billion non-net profit, a year-on-year decrease of 44.5%.

The company's magnetic material shipment situation is still good, and weakening industry supply and demand affects the company's short-term profitability: 1) The company's NdFeB production and sales continued to expand: 24H1's high-performance NdFeB permanent magnet product shipments were +10% year-on-year. Among them, high-performance NdFeB permanent magnet products were equipped with 2.23 million sets of energy-saving and new energy vehicle drive motors, +14%. With product competitiveness, the company's magnetic material production and sales situation is still good. 2) Continued product price decline and industry supply and demand deterioration led to a decline in the company's profitability: Affected by the slowdown in downstream demand, the average price of 2024H1 praseodymium oxide fell to 0.381 million/ton, the price of the company's magnetic products also continued to weaken, and industry competition intensified. The company's gross margin fell to 16.2%, -1.1 pct year on year, and net interest rate dropped to 5.9%, -1.8 pct year on year. The decline in profitability affected the company's performance. 3) Shanghai Dagun is still in a state of loss:

Affected by factors such as business adjustments to important strategic customers and increased market competition, 24H1 Shanghai Dajun's revenue was 0.018 billion and net profit was -0.034 billion, which also had a certain impact on the company's performance.

The company's core technology is constantly being iterated, and the advantages of the product structure are still prominent. 1) At present, the company's core technology is still being upgraded and iterated: 24H1 grain optimization technology (TOPS) product coverage reached 95%; heavy rare earth diffusion technology (THRED) product coverage exceeded 80%; ultra-light rare earth magnet shipments increased 86% year on year, accounting for more than 10% of the company's magnetic product shipments. 2) Tram magnets account for a relatively high proportion, and the product structure is better: The company has fully entered the supply chain of the world's mainstream car companies. Among the company's downstream customers, the automobile market accounts for about 70% (of which energy-saving and new energy vehicles account for about 50%), while tram magnets have a better release environment, profit level and affordability.

High-performance NdFeB still has broad prospects, and leading companies are expected to maintain their leading edge. High-performance NdFeB is one of the best growth tracks among magnetic materials. The fields of new energy vehicles, industrial motors, robots, etc. are still expected to bring a large increase in demand in the future, and leading companies are expected to maintain their leading edge in the face of increased competition in the industry, and profits are expected to improve significantly after demand recovers.

Profit forecast and investment advice: Considering the decline in profitability after increased competition in the industry, the company's net profit forecast for 2024-2026 was lowered to 3.8/5.0 /0.61 billion, but considering the high growth of rare earth permanent magnets+steady sales of the company, the company continued to be given an “gain” rating.

Risk warning: Risk of downstream demand falling short of expectations, risk of policy changes, risk of supply exceeding expectations.