\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 111 China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) )
Performance summary: in 2021, the company achieved an operating revenue of 30.41 billion yuan (+ 38.8%); The net profit attributable to the parent company was 5.13 billion yuan (+ 462%), corresponding to 1.41 yuan of EPS; The net profit attributable to the parent company after non deduction was 4.97 billion yuan (+445%). A cash dividend of 0.445 yuan was distributed per share, with a dividend rate of 1.28%. In 2021q4, the company achieved an operating revenue of 6.32 billion yuan (Mom – 32.6%) and a net profit attributable to the parent company of 1.98 billion yuan (mom + 78.0%);
The volume and price rose together to boost the leading performance of rare earth: during the reporting period, the high popularity of the downstream new energy terminal field of rare earth permanent magnet materials significantly boosted the demand for upstream rare earth products. The price of light rare earth products represented by praseodymium and neodymium basically maintained a unilateral upward trend in 2021, and the annual average ex factory price of praseodymium and neodymium oxide rose sharply to 591000 yuan / ton (+ 90.7%). The annual rare earth mining index of the company accounts for about 59.7% of China’s total mining, of which the light rare earth mining index accounts for 67.4%. Under the background of rising light rare earth prices, the company is the main beneficiary. In 2021, the company’s revenue of rare earth raw material products and rare earth functional materials reached 11.23 billion (+ 107%) and 7.4 billion (+ 85.4%) respectively, and their sales reached 137000 tons (+ 32.6%) and 62800 tons (+ 15.9%) respectively. The rare earth raw material business includes rare earth oxides, rare earth salts and rare earth metals, and their sales increased to varying degrees (+ 95.6%, + 15.9%, + 16.3%). The year-on-year rise in the indicators of the Ministry of industry and information technology and the high boom on the demand side promoted the increase of product sales, and the annual revenue achieved rapid growth under the background of both volume and price. In terms of product profitability, the gross profit margin of the company’s overall sales rose to 27.8% (+ 16.1pcts), mainly due to the sharp rise in product prices and the increase in the proportion of high value-added products. In terms of products, the gross profit margin of rare earth raw materials and rare earth functional materials reached 38.4% (+ 11.0pcts) and 41.5% (+ 21.8pcts) respectively. The sharp increase of the gross profit margin of the latter was mainly due to the optimization of product structure. The annual revenue of magnetic materials with high added value (43.9% in 2021) reached 6.58 billion yuan (+ 98.5%). The company’s Q4 revenue in 2021 deviated significantly from the mom growth rate of net profit attributable to the parent company. We speculate that the main reason is that the company’s Q4 trade business income decreased compared with the previous period;
Financial data: in 2021, the company’s sales / management / R & D expenses increased by 10.5% / 19.2% / 46.9% year-on-year respectively. Among them, the increase of sales and management expenses is mainly due to the company’s insistence on deepening the reform of salary system, resulting in the year-on-year increase of salary expenses; The substantial increase in R & D expenses is mainly due to the company’s gradual expansion to the downstream business of the industrial chain, resulting in an increase in material expenses, testing and testing expenses and depreciation and amortization of R & D equipment. Accounts payable increased by 50.4% year-on-year, mainly due to the company’s active extension to various high-end and high value-added fields downstream, and the increase of procurement business expenses; Contract liabilities increased by 80.6% year-on-year, mainly because the advance payment for goods increased rapidly compared with the beginning of the year;
Rare earth prices fluctuated at a high level, and the net profit in 2022q1 basically doubled year-on-year: according to the company’s 2022q1 performance forecast, we sorted out that the company’s Q1 net profit was about 1.52-1.72 billion yuan, with a year-on-year increase of 97% – 123%. The main factor was the rapid growth of new energy market demand, which maintained the continuous rising trend of light and rare earth product prices; However, the net profit of 2022q1 decreased month on month, mainly due to the rise of the cost side: the company signed a contract with Inner Mongolia Baotou Steel Union Co.Ltd(600010) at the beginning of 2022, and the transaction price of rare earth concentrate was adjusted to 26887 yuan / ton excluding tax (dry volume, REO = 51%), up 65.3% year-on-year. As rare earth prices continued the upward trend in 2021, offsetting the negative impact of rising costs, the company’s profits still achieved rapid growth;
The quota of the first batch of management and control indicators of the Ministry of industry and information technology has been increased, and the leading enterprises have benefited the most: the company has the exclusive mining right of Bayan Obo mine, the world’s largest rare earth mine. The unique advantages of mineral resources have laid a solid foundation for the long-term development of the company. The first batch of total control indicators for rare earth mining, smelting and separation issued by the Ministry of industry and information technology and the Ministry of natural resources in 2022 are 100800 tons and 97200 tons respectively. We expect the annual indicators to reach 201600 tons and 194400 tons respectively, maintaining a year-on-year increase of 20% compared with the annual indicators in 2021. In the first batch of indicators in 2022, China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) two indicators are allocated 60200 tons and 53800 tons respectively, accounting for 59.7% and 53.3% of the total indicators respectively. In the environment of continuous integration of rare earth resources, the company will continue to maintain its leading position;
Vertical extension of the industrial chain highlights the competitive advantages of the whole industrial chain: in recent years, the company has participated in the middle and downstream businesses of various rare earth industrial chains through vertical business extension. At present, it has formed an industrial structure based on rare earth resources, smelting separation as the core, focusing on the construction of new material field and terminal application as the expansion direction. The advantages of the whole industrial chain of the company can effectively reduce the cost of raw materials in the middle reaches of rare earth functional materials and downstream terminal applications, while the added value of downstream products is generally high, and the overall profitability of the company’s business is expected to improve with the continuous optimization of product structure. The advantages of resources, scientific research and the whole industrial chain will effectively build a comprehensive competitive barrier in the rare earth industry. The expansion to the downstream business of the industrial chain also weakens the company’s resource sales attribute to a certain extent. The diversified business layout is expected to provide new industrial opportunities for the company, so as to open a broader growth space;
Investment suggestion: it is estimated that the operating revenue of the company from 2022 to 2024 will be 39.7/43.5/48.8 billion yuan respectively, with a year-on-year increase of 30.5% / 9.7% / 12.1%, and the net profit attributable to the parent company will be 8.07/92.8/10.8 billion yuan respectively, with a year-on-year increase of 57.2% / 15.1% / 16.6%. Corresponding to pe16x / 14x / 12x, the company will be given a “buy” rating for the first time.
Risk tips: there is a risk of sharp fluctuation in the price of rare earth raw materials, a significant change in the total amount control index of rare earth issued by the Ministry of industry and information technology, the demand end of downstream rare earth functional materials is less than expected, and the impact of covid-19 epidemic is more than expected.
