\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 111 China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) )
Event: China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) released the first quarterly report of 2022. Q1 company achieved an operating revenue of 9.810 billion yuan in 2022, with a year-on-year increase of 49.72% and a month on month increase of 55.28%; The net profit attributable to the parent company was 1.558 billion yuan, an increase of 88.51% year-on-year and a decrease of 21.35% month on month; The non net profit deducted was RMB 1.671 billion, a year-on-year increase of + 117.40% and a month on month decrease of – 16.77%. The forecast range of Q1 performance in 22 years previously disclosed by the company is RMB 1.525-1.725 billion, and the performance is in line with expectations.
Non recurring factors affect the release of the company’s performance in the short term, and the annual high growth can be expected. 1) Volume: affected by factors such as production capacity, Spring Festival holiday and epidemic situation, the sales volume of Q1 rare earth oxides in 22 years was 7200 tons (year-on-year – 18.46%, month on month – 46.99%), the sales volume of rare earth salts was 18800 tons (year-on-year + 48.80%, month on month – 26.40%), and the sales volume of rare earth metals was 5500 tons (year-on-year – 8.81%, month on month + 2.24%). 2) Cost: the main cost of the company is the purchase cost of rare earth concentrate. According to the company’s Inner Mongolia Baotou Steel Union Co.Ltd(600010) agreement, the purchase price of rare earth concentrate was 26900 yuan / ton (REO = 51%) in 22 years and 16300 yuan / ton in 21 years. The cost per ton of praseodymium neodymium oxide increased by about 106000 yuan / ton. 3) Price: the price double track system operates. The average market price of Q1 praseodymium neodymium oxide is 1.006 million yuan / ton, an increase of 99.03% year-on-year and 30.27% month on month. However, the listing price of Q1 China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) praseodymium neodymium oxide is 816000 yuan / ton, which has a price difference of 190000 yuan / ton from the average market price, affecting the final comprehensive price. According to the above quarterly production and sales volume and cost level, we calculate that the realized price of Q1 praseodymium neodymium oxide of the company is about 85 Shenzhen Tagen Group Co.Ltd(000090) 0000 / ton. 4) Non recurring profit and loss: during the reporting period, the company disposed of loss making assets such as Baotou Steel Tiancai Jingjiang technology and xibaobo medical system, with asset replacement income of – 22 million yuan and fair value change of trading financial assets of – 147 million yuan, which affected the release of the company’s performance in the short term.
Improve the ability of cost control. In 2022q1, the company’s period expense increased by 26.97% year-on-year to 416 million yuan, and the period expense rate decreased by 0.90 PCTs year-on-year from 5.14% to 4.24%. Specifically, the sales expense increased by 6.71% year-on-year to 14 million yuan, and the sales expense rate decreased by 0.06 PCTs year-on-year from 0.20% → 0.14%; Administrative expenses increased by 33.72% year-on-year to 242 million yuan, and the rate of administrative expenses decreased by 0.37 PCTs year-on-year from 2.83% to 2.46%; The financial expenses increased by 10.27% year-on-year to 102 million yuan, and the financial expense rate decreased by 0.58 PCTs year-on-year from 1.46% to 1.04%; The R & D expenses increased by 41.46% year-on-year to 58 million yuan, and the R & D expense rate decreased by 0.05 PCTs year-on-year from 0.64% → 0.59%.
Maintain the judgment that rare earth supply exceeds demand. The short-term correction of rare earth prices is mainly related to the impact of the epidemic on the demand of the middle and lower reaches. With the resumption of work and production, the demand side is gradually restored, and the enterprise stock is expected to drive the price upward. In terms of lengthening the cycle, under the background of carbon neutrality, the demand for new energy vehicles, industrial energy-saving motors and other fields has exploded, and the growth rate of industry demand is expected to be about 15%. On the supply side, the high rare earth price will not lead to the disorderly release of the supply side. China’s rare earth supply is controlled by indicators. Overseas mines such as mtpass, Lynas and Myanmar do not have large capital expenditure plans, and the rare earth supply is lack of flexibility. We maintain the judgment that supply exceeds demand.
The rare earth leader moves from cycle to growth – the sustainability of high growth has not been fully recognized by the market. The investment logic of rare earth industry in the 21st year pays more attention to “price”, and the logic of “quantity” will be switched in the 22nd year. According to the 21 year rare earth quota issued by the Ministry of industry and information technology, China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) accounts for 96% of the increment of rare earth index. Considering environmental protection, mining and metallurgy capacity and other objective factors, it is not too much to position China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) as a major growth source in the world. We expect its output to reach an average annual compound growth rate of 30-40%, and the valuation of rare earth leader is expected to be reshaped.
Profit forecast and investment suggestions: assuming that the average price of praseodymium and neodymium oxide in 20222023 is 850000 yuan / ton, we expect the net profit of the company in 2022 / 2023 / 2024 to be 10, 13.1 and 16.1 billion yuan respectively. According to the closing price on April 27, 2022, the market value of the company is 111.7 billion yuan, and the corresponding PE in 22-24 years is 11.1, 8.5 and 6.9x respectively. Maintain the company’s “buy” rating.
Risk tips: the risk of industrial policy change, the risk of exceeding the expected release at the supply end, the risk of less than expected demand, the risk of untimely update of the public data used in the research report, the risk of deviation in demand calculation, etc.
