\u3000\u3000 Inner Mongolia Baotou Steel Union Co.Ltd(600010) (600010)
Events
On the evening of January 7, the company announced that it would renew 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 excluding tax (dry volume, REO = 51%) from January 1, 2022. For every 1% increase or decrease in REO, the price excluding tax would increase or decrease by 527.2 yuan / ton (dry volume), and the total transaction volume of rare earth concentrate in 2022 would not exceed 230000 tons (dry volume, REO = 50%).
Commentary
The price adjustment range exceeded expectations, and the price adjustment frequency is expected to increase
According to the agreement announcement of the company in March 21, the sales price of rare earth concentrate is 16269 yuan / ton excluding tax, the total transaction volume in 21 years does not exceed 180000 tons, and the transaction price is determined quarterly.
In this price adjustment, the price per ton increased by 10618.2 yuan, a range of more than 65%, much higher than the 30% expected by the market, corresponding to a range of about 4000-5000 yuan / ton. After Q2 in 21, the price of rare earth fluctuated greatly. The company did not adjust the price of rare earth concentrate in the last three quarters. With the current high price of praseodymium and neodymium oxide, it became stable. According to the announcement in March 21, the price adjustment frequency may be increased in 22 years.
In the past 22 years, the volume and price of rare earth concentrate increased simultaneously, with great profit elasticity
According to the 21 year interim report, 87000 tons of rare earth concentrate were produced from January to June, 75400 tons were sold, the income was 1.41 billion yuan, the gross profit was 1.093 billion yuan, and the gross profit per ton was 14496 yuan / ton. As the company uses rare earth tailings resources for development, the cost is low, and the profit per ton is expected to exceed 20000 yuan per ton in 22 years.
According to the plan that the total amount of related party transactions between the company and China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) in 22 years will not exceed 230000 tons, the profit of the company’s rare earth business in 22 years is expected to exceed 4.5 billion yuan, more than double that in 21 years.
At present, the steel industry is expected to benefit from steady growth. The company has formed an annual iron, steel and material distribution capacity of 17.5 million tons, and has the production capacity of high-grade automobile steel, high-grade household appliance steel, high-grade pipeline steel and high-strength structural steel. It is estimated that the steel business will achieve a profit of 3 billion in 21 years. Under the current background of steady growth, the steel profit in 22 years is expected to remain stable.
Profit forecast & investment suggestions
Due to the agreement between the company and China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) to raise the supply price of rare earths for 22 years, the company’s rare earth business is expected to usher in a simultaneous increase in volume and price, raising the net profit attributable to the parent company for 22-23 years by 41% and 34% respectively to RMB 7.662 billion and RMB 7.806 billion, corresponding to EPS of RMB 0.17 and RMB 0.17 respectively, and PE of 18 and 18 times respectively, and raised to the “buy” rating.
Risk tips
Risk of profit decline in iron and steel business; Downstream demand is lower than expected.
