\u3000\u3000 Inner Mongolia Baotou Steel Union Co.Ltd(600010) (600010)
Event overview: on January 7, the company announced that the company renewed the rare earth concentrate supply contract with China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) and planned to adjust the sales price of rare earth concentrate of both parties to 26887.20 yuan / ton (dry volume, REO = 51%) excluding tax from January 1, 2022. For every 1% increase or decrease in REO, the price excluding tax will increase or decrease by 527.2 yuan / ton (dry volume), The total trading volume of rare earth concentrate in 2022 will not exceed 230000 tons (dry volume, REO = 50%).
Analysis and judgment:
Price: the sales benchmark price of rare earth concentrate increased significantly by 65.27% year-on-year in 2021. The contract stipulates that the sales price of rare earth concentrate will be adjusted to 26887.20 yuan / ton excluding tax from January 1, 2022, with a significant year-on-year increase of 65.27%. For every 1% increase or decrease in REO, the price excluding tax will increase or decrease by 527.2 yuan / ton, with a year-on-year increase of + 65.27%. The development prospect of rare earth downstream magnetic materials is broad, and the price of rare earth rises sharply. The average price of rare earth concentrate in 2021 is + 98.32% year-on-year, and the average price of praseodymium neodymium metal in 2021 is + 86.87% year-on-year. The company’s rare earth sales price is expected to rise for a long time.
Volume: the total trading volume of rare earth concentrate in 2022 was 230000 tons, a year-on-year increase of + 27.78%. The contract stipulates that the total transaction volume of rare earth concentrate in 2022 will not exceed 230000 tons, which is no more than 180000 tons as agreed in the contract in 2021, with a year-on-year increase of 27.78%. In the first half of 2021, the company produced 87000 tons of rare earth concentrate, sold 75400 tons, and the gross profit of rare earth plate reached 1.093 billion yuan. The total transaction volume and selling price of rare earth concentrate in 2022 agreed with China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) have increased, and the profit contribution of the company’s rare earth sector will be more prominent.
The company has 13.82 million tons of rare earth oxide reserves and 450000 tons of rare earth concentrate production capacity. The long-term prospect of rare earth plate is broad. The Bayan Obo mine owned by the controlling shareholder Baotou Iron and Steel Group is a world-famous resource treasure house. The proven rare earth oxide reserves are 35 million tons, ranking first in the world. The company has a resource reserve of 200 million tons in Baiyunebo mine tailings pond, a rare earth oxide reserve of about 13.82 million tons, and a rare earth concentrate production capacity of 450000 tons. Rare earth continues to have a high outlook, the center of gravity of rare earth prices rises gradually, and the rare earth plate has broad long-term prospects.
Under the background of “carbon peak and carbon neutralization”, the profitability of the company’s steel plate has been greatly improved. The company has four high-quality production lines of “board, pipe, rail and line”. The company’s steel production capacity is 17.5 million tons, and has formed a production pattern of four high-quality lines of “plate, pipe, rail and line”. With a production capacity of 9.7 million tons of CSP and wide and thick plate, it is the largest plate production base in Northwest China. It has two world advanced universal rolling mill high-speed rail production lines with an annual production capacity of 2.1 million tons. It is a high-speed rail production base with the highest equipment level and the strongest capacity in the world. With 5 seamless pipe production lines and an annual production capacity of 1.8 million tons, it is the seamless pipe production base with the most complete varieties and specifications in China. The company’s iron and steel raw materials are highly guaranteed. The proven iron ore reserves of Baotou Iron and Steel Group, the controlling shareholder, are 1.4 billion tons. The company has a coke production capacity of 8 million tons, providing guarantee for blast furnace raw materials. Under the background of “carbon peak and carbon neutralization”, the focus of steel price is expected to rise gradually and continue to thicken the performance of the company’s steel plate.
Investment suggestion: the rare earth sector has broad development prospects. Under the background of “carbon peak and carbon neutralization”, the profitability of the steel sector has improved. We expect that the net profit attributable to the parent company from 2021 to 2023 will be RMB 5.611/7.032/8.25 billion, corresponding to the closing price of RMB 2.79 on January 7, 2022, and the PE from 2021 to 2023 will be 23 / 18 / 15 times, covering for the first time, giving the company a “recommended” rating.
Risk warning: the price of raw materials rises rapidly; Downstream demand does not meet expectations; Macro risk, etc.
