\u3000\u3000 China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) (600111)
The world’s largest rare earth company has better growth than the average value of China’s industry. The company’s rare earth ore and smelting separation index has accounted for more than 50% of the country for a long time. The rare earth ore mining index has increased from 59500 tons in 2017 to 100000 tons in 2021, with cagr14% in four years, which is higher than cagr12 of the national total rare earth ore mining index in the same period 5%。 The company is also the only company whose quota index increased month on month in the second half of 2021.
The cost is low, the gross profit margin is higher than the industry average, and the three fee rate continues to decline. Relying on the controlling shareholder Baotou Iron and Steel Group, the company has the exclusive mining right of Bayan Obo mine and purchases the rare earth concentrate produced by its holding subsidiary Inner Mongolia Baotou Steel Union Co.Ltd(600010) . Bayan Obo mine has the largest rare earth reserves in the world. Its reserves will reach 83% of the national reserves in 2020. It is recognized as a kind of refractory ore in the world. The company adopts the third generation sulfuric acid smelting technology, with advanced smelting separation process and advantageous production cost. In 2020, the gross profit margin of the company’s rare earth business was 27.5%, higher than the industry average of 14.4%.
The prosperity of the industry remained high. Benefiting from the strong demand for downstream vehicles and wind power and the energy efficiency improvement plan for industrial motors, the main demand for Nd-Fe-B downstream is expected to change from vehicles (14.5%), wind power (8.2%) and industrial Siasun Robot&Automation Co.Ltd(300024) (5.9%) in 2020 to vehicles (30.7%), wind power (9.5%) and industrial motors (8.4%) in 2025. It is estimated that the global demand for praseodymium and neodymium oxide will reach 123000 tons in 2025 and cagr14.5 million tons in 2020-2025 3%。 It is estimated that the global supply of praseodymium and neodymium oxide will be 122000 tons in 2025 and cagr13.5 tons in 2020-2025 8%. From 2020 to 2025, praseodymium and neodymium oxide will continue to be in a small gap or tight balance between supply and demand, and the price of praseodymium and neodymium oxide will be in a high position.
The company’s performance flexibility is the largest among Listed Companies in China’s rare earth industry: benefiting from the improvement of the prosperity of the rare earth industry, the rare earth sector still has great prospects. The elasticity of stock price to commodity price is also one of the important factors in stock selection. Assuming that the amount of praseodymium and neodymium oxide accounts for 20% of the total rare earth oxide quota, our calculation method of elasticity: assuming that the commodity price increases by 1%, the cost remains unchanged, the income tax is 25%, and then according to a certain PE multiple, the ratio of the rising market value to the current market value is elastic, so China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) is the most elastic among the listed companies in China’s rare earth industry.
Profit forecast, valuation and rating: benefiting from the strong demand for downstream automobiles, wind power and industrial motors, and superimposing the high prices of rare earth oxides and rare earth metals, we are optimistic about the investment opportunities brought by the double rise of the company’s performance and valuation. It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be 4.94 billion yuan, 7.35 billion yuan and 9.61 billion yuan respectively, with a year-on-year increase of 493.6%, 48.6% and 30.8%, and the corresponding PE will be 30x, 20x and 15x respectively. Combined with absolute and relative valuation, considering the high prospect of the rare earth industry, the company has the largest rare earth quota in China and the controlling shareholder has the world’s largest Bayan Obo rare earth mine, which is covered for the first time and rated as “overweight”.
Risk warning: the demand for downstream new energy vehicles, wind power and industrial motors is lower than expected; The capital expenditure of global rare earth mines increased, and the production capacity expanded significantly than expected; The change of new technology weakens the competitiveness of permanent magnet motor and is replaced by new products; Rare earth oxide price fluctuation risk; Some data are lack of authoritative references, and there may be deviations in assumptions.
