\u3000\u3000 China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) (600111)
Event: on January 14, 2022, the company issued the announcement of performance increase in 2021. It is estimated that the company’s net profit attributable to the parent company in 2021 will reach RMB 4.901 billion to RMB 5.061 billion, with a year-on-year increase of 488.58% to 507.79%, deducting the net profit not attributable to the parent company of RMB 4.707 billion to RMB 4.867 billion, with a year-on-year increase of 484.16% to 504.02%. In a single quarter, Q4 realized a net profit attributable to the parent company of RMB 1.752 billion to RMB 1.912 billion, with a month on month increase of 57.34% to 71.71% and a year-on-year increase of 439.38% to 488.65%. The performance exceeded wind’s consensus expectations.
The year-on-year increase in net profit attributable to the parent company may be due to the simultaneous increase in the volume and price of main products during the reporting period. In terms of quantity, the second batch of rare earth mining indicators were announced in Q4, China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) obtained 10035 tons of REO, increased 26800 tons of REO, and obtained 96% of the increment of light rare earth indicators. Therefore, the production and sales of rare earth products of the company increased in the whole year; In terms of price, the annual average price of praseodymium neodymium oxide in 2021 reached 595800 yuan, a year-on-year increase of 91.83%.
On a month on month basis, Q4’s performance has increased significantly on a month on month basis, or it may also benefit from the simultaneous rise in the volume and price of major products. In terms of volume, in 2021q3, the sales volume of rare earth oxides of the company decreased by 32.73% month on month to 7975.65 tons, or because the mining and separation indicators were not issued in Q3, the capacity utilization rate was low. With the release of Q4 indicators, the high price of Q4 rare earth was superimposed, and the production and sales volume may rise accordingly; In terms of price, the average Q4 price of praseodymium neodymium oxide in 2021 reached 773700 yuan, a year-on-year increase of 107% and a month on month increase of 31.1%.
In 2022, the rare earth concentrate purchase agreement was signed, and the cost advantage remains. As the price of Q4 rare earth oxide increased significantly, according to the agreement between the company and Inner Mongolia Baotou Steel Union Co.Ltd(600010) , both parties adjusted the concentrate price in 2022 and agreed that the sales price of rare earth concentrate would be adjusted to 26887.2 yuan / ton excluding tax from January 1, 2022, with a year-on-year increase of 65.27%. Although the price increases greatly, if the following two points are considered, China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) still has an industry-leading cost advantage. ① The increase of concentrate price is less than that of rare earth products in the whole year. The price adjustment actually takes into account the rise of rare earth prices in the four quarters of 2021. The price rise of praseodymium neodymium oxide in the whole year is 106%, which is much larger than the rise of rare earth concentrate price. ② There is still a discount between the agreed price and the market price. In 2021, the average price of rare earth concentrate (70% REO) in the whole year was 40329 yuan / ton, while the agreement price of China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) rare earth concentrate of this grade was only 36904 yuan / ton, with a discount of 8.5%. Compared with the current price of 76000 yuan / ton of rare earth concentrate (70% REO), the agreement price had a discount of 51.44%.
In 2022, the company’s production and sales volume may still increase significantly. On the one hand, the demand for downstream NdFeB magnetic materials is driven by new energy vehicles and industrial energy-saving motors, which objectively needs to release a large supply. On the other hand, the purchase quantity ceiling of rare earth concentrate agreement in 2022 reached 230000 tons, an increase of 27.8% year-on-year. Therefore, the growth of annual sales volume in 2022 has strong certainty.
Investment suggestion: the company is a leader in the light rare earth industry. It obtains a strong cost advantage by purchasing Inner Mongolia Baotou Steel Union Co.Ltd(600010) low-cost rare earth concentrate, and the growth of production and sales is relatively certain. It is expected to fully benefit from the prosperity of the rare earth industry. We expect that the company will realize net profit attributable to the parent company of RMB 5.029 billion, RMB 7.375 billion and RMB 8.651 billion from 2021 to 2023, with EPS of RMB 1.38, RMB 2.02 and RMB 2.37 respectively; PE corresponding to the closing price on January 13 is 30, 20 and 17 times respectively. It is covered for the first time and given a “recommended” rating.
Risk tips: the downstream demand is lower than expected, the index increases too fast, and the progress of overseas mine projects is higher than expected
