\u3000\u3000 China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) (600111)
Event: China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) released the performance forecast for 2021. It is estimated that the net profit attributable to the parent company in 2021 will be RMB 4.901-5.061 billion, a year-on-year increase of RMB 4.068-4.228 billion, a year-on-year increase of 488.58% to 507.79%; It is expected to realize the deduction of non net profit of RMB 4.807-4.867 billion, a year-on-year increase of RMB 3.901-4.061 billion, a year-on-year increase of 484.16% to 504.02%. Performance exceeded expectations.
In 21q4, the company realized a net profit of RMB 1.752-1.912 billion (annualized to RMB 7.008-7.648 billion), an increase of 57% – 72% month on month, a record high. 1) The contradiction between supply and demand was further intensified, and the price of Q4 rare earth accelerated upward. The average price of praseodymium and neodymium oxide Q4 was 772000 yuan / ton (mom + 30.49%, yoy + 107.66%), and the average price of praseodymium and neodymium metal Q4 was 950000 yuan / ton (mom + 29.52%, yoy + 101.96%); 2) Due to the influence of power restriction policy and maintenance in the third quarter, the output of main products decreased and is expected to recover in the fourth quarter.
The supply and demand pattern has been further improved, the price cycle has weakened, and the rare earth industry is not what it used to be. 1) Black Rare Earth is a major factor causing violent fluctuations in rare earth prices in the past. At present, it has been cleared. It is difficult to see large-scale volume of overseas supply in 2-3 years. China rare earth group was officially established, and the industry supply pattern is further concentrated to leading enterprises. In the future, rare earth supply can only rely on the growth of rare earth indicators, and the supply side is lack of elasticity. 2) At the same time, the demand change has increased. Under the background of “carbon neutrality”, energy conservation and emission reduction has become a consensus and the requirement of the times, and the green economy such as new energy vehicles, industrial motors and wind power has ushered in explosive growth. 3) Although the price of rare earth has risen to 900000 yuan / ton, which is relatively high in history, different from other commodities, the high price of rare earth is difficult to stimulate large-scale volume on the supply side, and the demand side is less sensitive to price. It is expected that the demand growth CAGR will be 15-20% in the next 3-5 years, and the price of rare earth will return to value under this supply and demand pattern.
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 will switch to the logic of “quantity” 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 metallurgical capacity and other objective factors, China Northern Rare Earth (Group) High-Tech Co.Ltd(600111) is close to the positioning of the world’s main growth source. We expect its annual compound growth rate of output to reach 30-40%, Rare earth leading valuation is expected to reshape.
Profit forecast and investment suggestions: assuming that the average price of praseodymium and neodymium oxide from 2021 to 2023 is 57 / 85 / 85000 yuan / ton, according to the latest purchase price and agreement of rare earth concentrate, the price of rare earth concentrate is 26700 yuan (excluding tax, REO = 51%), we raised the company’s net profit from 2022 to 2023 to 10.1 billion yuan and 13.1 billion yuan respectively (the original profit forecast was 9.5 billion yuan and 12.6 billion yuan respectively), according to the closing price on January 13, 2022, Based on the market value of 149.1 billion, the corresponding PE is 30, 15 and 11x respectively. Maintain the company’s “buy” rating.
Risk tips: risk of industrial policy change, risk of release of supply side exceeding expectations, risk of demand falling short of expectations, etc.
