\u3000\u3000 China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) (600111)
Key investment points
Event: the company released the performance forecast for 2021. It is estimated that the net profit attributable to the parent company for the whole year will be RMB 4.901-5.061 billion, with a year-on-year increase of 488.58% – 507.79%; Thus, the company’s annual EPS is 1.35-1.39 yuan, and Q4 is 0.48-0.52 yuan in a single quarter, an increase of 54.85% – 67.74% over Q3, exceeding our and market expectations.
The increase in profit comes from the rise in the price of praseodymium and neodymium: in 2021, the average price of praseodymium and neodymium oxide was 590000 yuan / ton, the average price of praseodymium and neodymium metal was 730000 yuan / ton, an increase of 89.7% and respectively year-on-year, the average price of Q4 praseodymium and neodymium oxide was 770000 yuan / ton, the average price of praseodymium and neodymium metal was 940000 yuan / ton, an increase of 30.15% and 28.73% respectively, an increase of 105.87% and 100.81. The rising price of rare earth products is the driving force for the substantial growth of the company’s performance.
The rare earth industry is still in the early stage of the new growth cycle: the supply and demand of the rare earth industry have undergone fundamental changes. The orderly and highly centralized supply pattern in China and the stability of the three pillars of global supply mean that the supply elasticity is lower. In terms of demand, under the background of global low-carbon and electrification, the energy efficiency of new energy vehicles, industrial motors, wind power Siasun Robot&Automation Co.Ltd(300024) and others have replaced consumer electronics and become the main driving force for the demand for rare earth permanent magnets, bringing an increase in the order of magnitude. We predict that the compound growth rate of rare earth permanent magnet demand is expected to remain at about 20% from 2022 to 2025.
The company is the main source for the growth of global praseodymium and neodymium production: as the leader of light rare earth, the company’s quota in 2021 accounted for 67.42% and 55.33% of the national light rare earth ore quota and smelting separation quota respectively, accounting for 95.71% and 95.74% of the corresponding quota increment respectively. It is the core enterprise of rare earth production and the main source of growth. Therefore, the company is expected to share the industry boom to the greatest extent.
The cost has been locked in 2022, and the increase of product price at the beginning of the year basically covers the increase of cost: there is a certain lag in cost adjustment. In 2022, the transaction price of rare earth concentrate between the company and Inner Mongolia Baotou Steel Union Co.Ltd(600010) was adjusted to 26887 yuan / ton excluding tax (dry volume, REO = 51%), a year-on-year increase of 65%, an increase of 36 percentage points over the previous year. Affected by this, we estimate that the comprehensive cost of the company’s rare earth raw material products will rise by 50%. Meanwhile, as of mid January 2022, the average price of praseodymium neodymium oxide and metal increased by 48% – 50% in 2021, basically covering the increase of cost.
Investment suggestion: we adjusted the company’s earnings per share from 2021 to 2023 to be 1.36 yuan, 1.83 yuan and 2.36 yuan respectively. The return on net assets was 35.0%, 35.7% and 34.8% respectively, and the buy-b rating was reiterated.
Risk tip: the growth rate of rare earth permanent magnet downstream industry is lower than expected, and the quota is higher than expected
