\u3000\u30 Beijing Zznode Technologies Co.Ltd(003007) 48 Jl Mag Rare-Earth Co.Ltd(300748) )
Performance summary: in 2021, the company achieved an operating revenue of 4.08 billion yuan (+ 68.8%), a net profit attributable to the parent company of 453 million yuan (+ 85.3%), a corresponding EPS of 0.64 yuan, a net profit attributable to the parent company after deduction of Non Profits of 423 million yuan (+ 86.4%), and a cash dividend of 2.5 yuan per 10 shares. In Q4 of 2021, the revenue was 1.16 billion yuan (mom + 4.8%), and the net profit attributable to the parent company was 102 million yuan (Mom – 22.1%);
High output and sales demand and high boom boost performance: the high prospect of new energy in the downstream of high-performance Nd-Fe-B magnetic steel in 2021 and the promotion of relevant industrial policies have effectively affected the terminal demand of rare earth permanent magnet motor. During the reporting period, the company had sufficient orders on hand and made full use of production capacity. The sales volume of high-performance rare earth permanent magnet materials was 10700 tons, with a year-on-year increase of 21.4% and a production and sales rate of 103.7%. From the price side, the annual average price of the product rose to 352000 yuan / ton, (+ 47.7%), and the sharp rise in sales volume and price strongly promoted the growth of the company’s revenue. In terms of product profitability, the company’s annual sales gross profit margin is 22.4% (- 1.35pcts), which is mainly due to the rapid rise of raw material prices. The annual average ex factory price of light rare earth products represented by praseodymium and neodymium oxide reaches 591000 yuan / ton (+ 90.7%), but the cost side pressure is expected to be gradually transmitted to the downstream over time; The net profit attributable to the parent company in Q4 decreased by 22.1% month on month, mainly due to the rapid growth of financial expenses and R & D expenses. Among them, the sharp increase in financial expenses month on month is due to the low base caused by the conversion of Q3 convertible bonds into shares;
Financial data: in 2021, the company’s sales expenses increased by 44.9% year-on-year, mainly due to the increase of exhibition publicity expenses; Management expenses increased by 52.5% year-on-year, mainly due to the provision of equity incentive expenses of 51.52 million yuan in the reporting period, the intermediary expenses involved in equity financing and the increase in the depreciation of leased assets; R & D expenses increased by 55.2%, mainly due to increasing R & D investment and withdrawing 17.56 million yuan of equity incentive expenses for R & D personnel;
Raising investment projects help break through the bottleneck of production capacity: as of the reporting period, the company’s “high-performance rare earth permanent magnet material base project” has been completed and put into use, adding 8000 tons of production capacity for the company, and the annual production capacity of neodymium iron boron blank has reached 23000 tons; The project of “new energy vehicles with an annual output of 3000 tons and high-end magnetic materials in 3C field” is expected to be completed and put into operation in 2023. The long-term plan proposes that the total capacity of NdFeB magnetic steel will be increased to 40000 tons in 2025. At that time, the company will become a leading manufacturer of high-performance NdFeB permanent magnetic materials with leading capacity in China. With the continuous implementation of new capacity, the company will break through the capacity bottleneck. The unit cost reduction caused by scale effect and the high growth rate of downstream new energy demand will help accelerate the release of the company’s future performance;
The management team is stable and looks at the international layout: the lifting of restrictions on sales and share registration related to the company’s 2020 restricted stock incentive plan have been carried out smoothly, and the cohesion of talents has been further improved. The company actively arranged overseas markets, set up subsidiaries in Hong Kong, Europe, Japan and the United States respectively, and listed on H shares on January 14, 2022, becoming the first a + H listed company in China’s rare earth permanent magnet industry, and the company’s core competitiveness has been significantly improved;
The industry has high barriers to competition and the company has competitive advantages: as one of the knowledge and technology intensive strategic emerging industries, the production industry of high-performance NdFeB permanent magnet materials has effectively constructed the moat of the industry with high technical R & D barriers, capital barriers and customer stickiness barriers. The company’s grain boundary penetration technology has high process barriers, which helps to reduce the consumption of medium and heavy rare earths by about 50-70%, effectively help customers in the downstream wind power industry reduce their production costs, and realize large-scale production and delivery in the fields of new energy vehicles and variable frequency air conditioning. As manufacturers of rare earth permanent magnet materials need to meet the specific requirements of downstream customers for product characteristics, quality, quantity and delivery time, while downstream customers generally need 3-5 years of product certification time, which will not be easily replaced after long-term cooperation and approval, so the stickiness of customers is generally high. The company has successfully entered the supply system of top customers in Tesla, Byd Company Limited(002594) , Volkswagen, Midea, Gree, Siemens, KONE elevator and other fields, and has a strong competitive advantage in the industry;
The high prosperity of new energy strongly affects the terminal demand: the high growth rate of various downstream application fields of high-performance NdFeB permanent magnet materials provides a strong starting point for the demand of NdFeB magnetic steel. In terms of business, the company’s revenue from new energy vehicles, wind power and variable frequency air conditioning reached RMB 1.05/8.87/1.4 billion respectively, accounting for 81.8% of the total revenue; Among them, the company’s revenue in the field of new energy vehicles increased by 222.7% year-on-year, and the product shipment can assemble about 1.24 million new energy passenger vehicles. Under the background of carbon neutrality, the introduction of relevant policies and the orderly promotion of energy strategy have effectively maintained the rapid development trend of new energy vehicle industry; The motor energy efficiency improvement plan (20212023) has accelerated the penetration of high-efficiency and energy-saving motors in China and provided incremental market space for rare earth permanent magnet motors. Therefore, with the increase of the production and sales of new energy vehicles and the penetration rate of rare earth permanent magnet motors, new energy vehicles are expected to become the downstream core incremental market of high-performance NdFeB permanent magnet materials, and the company is expected to enjoy the dividends brought by the high prosperity of the new energy industry;
There may be a supply gap for high-performance NdFeB magnetic materials in the future: according to the future capacity expansion plan of existing Chinese enterprises and the growth of downstream demand, we expect the supply and demand gap of high-performance NdFeB magnetic materials in China to gradually widen in the future. As NdFeB permanent magnet materials are non standardized products, involving the research and development of new materials, new processes and new products, NdFeB manufacturers often need to formulate relevant production plans according to the needs of downstream customers for products. New energy vehicle enterprises often provide technical parameters and product specifications of relevant motors. Nd-Fe-B manufacturers need to carry out customized design and mass production according to the parameters provided by customers. The company’s determination to expand production also confirms the high demand of downstream new energy terminals. If the supply gap is further widened in the future, the profitability of rare earth permanent magnet processing enterprises is expected to be further improved;
Investment suggestion: the rapid development of the new energy industry has laid the foundation for the development of the market space of the rare earth permanent magnet industry. The shortage of high-performance NdFeB magnetic materials will continue to benefit the magnetic material processing enterprises. The company’s leading processing technology and corresponding production expansion plan will effectively maintain its competitive advantage, and the performance is expected to accelerate after the gradual implementation of production capacity in the future. We expect that the company’s operating revenue from 2022 to 2024 will be RMB 73.7/82.1/9.61 billion respectively, with a year-on-year increase of 81% / 11% / 17%, and the net profit attributable to the parent company will be RMB 660.8/1.09 billion respectively, with a year-on-year increase of 46% / 33% / 24%, corresponding to pe41x / 30x / 25X. “Buy” rating is given for the first time.
Risk tip: the downstream new energy demand is less than expected, the progress of raised investment projects is less than expected, and the price of raw materials fluctuates sharply.
