Jiangsu Huahong Technology Co.Ltd(002645) (002645)
The subsidiary established with southern rare earth was approved by the EIA and maintained the “buy” rating
Ganzhou Huazhuo, a holding subsidiary jointly invested by the company and Nanfang rare earth, obtained the EIA reply, which agreed to build a project to process 60000 tons of neodymium iron boron recycled materials per year. The scrap equipment and rare earth recovery business ushered in a favorable industry. The subsidiary obtained the EIA approval, and we maintained the profit forecast unchanged. It is expected that the net profit attributable to the parent company in 2021-2023 will be RMB 547 / 690 / 874 million respectively, and the EPS in 2021-2023 will be RMB 0.94/1.18/1.50 respectively. The current stock price corresponds to 28.7/22.8/18.0 times the P / E ratio, maintaining the “buy” rating.
The EU prohibits the export of scrap steel, highlighting the decarbonization status of China’s scrap steel industry
According to the renewable resources information network, in November 2021, the European Commission completely banned the export of ferrous and non-ferrous metals in the EU. At the “2021 high-end forum on China’s iron and steel raw material market”, the party secretary of metallurgical industry planning and Research Institute said that from January to September 2021, China’s total scrap consumption was about 200 million tons, with a year-on-year increase of 31%, of which only 489900 tons of scrap were imported from January to September, most of which were self-produced. It is estimated that in 2025, the output of scrap steel resources in China will reach more than 340 million tons, of which the proportion of electric furnace steel output in the total output of crude steel will rise to 15% – 20%, and the proportion of scrap steel will reach 30%. Each ton of scrap steel can also save 0.4 tons of coke or about 1 ton of raw coal, saving 60% and 40% more energy than molten iron. The company’s scrap processing equipment business realized an operating revenue of 680 million yuan in 2021h1, a year-on-year increase of + 94%; The operating income of scrap steel and scrap automobile business was 748 million yuan, a year-on-year increase of + 334%. Under the background of “carbon neutralization”, the transformation and upgrading of China’s iron and steel industry is accelerated, and the scrap processing equipment and recycling business are expected to achieve rapid growth.
Jiangxi province strengthens the management of rare earth industry and optimizes the industrial development environment
In November 2021, the general office of Jiangxi Provincial People’s government issued a notice, and in 2020, the general office of Jiangxi Provincial People’s government issued the implementation opinions on promoting the high-quality development of rare earth industry. In order to do a good job in connection with the work, the provincial government decided to abolish the notice of the general office of Jiangxi Provincial People’s Government on Further Strengthening the management of rare earth production and operation. The company’s rare earth recovery business in 2021h1 achieved an operating revenue of 1.33 billion yuan, a year-on-year increase of 309%, and the gross profit margin was 22.1%, a year-on-year increase of + 8.6pct. The company completed the acquisition of Jiangxi Wanhong in 2021h1, and the rare earth recovery capacity was further improved. Benefiting from the strong demand for new energy vehicles and wind power, the price of rare earth oxide in 2021h1 is higher than that in 2020, and the company’s rare earth recycling business has great prospects in the future. In November 2021, the two departments issued a document to strengthen the application of high-efficiency and energy-saving motors. The main product of the company’s rare earth recovery business, neodymium oxide spectrum, is the core material of permanent magnet motors.
Risk tip: market competition intensifies, raw material prices rise, and the benefits of M & A integration are lower than expected.
