Baosteel Rare Earth In-depth Report: Policy Dividends Continue to Develop Space for Magnetic Materials

By analyzing the rare earth reserves data over the years, we have found that China's rare earth reserves have been significantly overestimated, with actual reserves accounting for around 30% of the world's total.

Refining the rare earth industry into a substantive stage

For a long time, China's rare earth reserves account for 30% of the world's supply of more than 90% of the world's rare earth demand. It can be imagined that China's future tightening policy for rare earth supply should gradually increase. Although some achievements have been achieved through the control of production, export quotas, and mergers and reorganizations, we have seen that the disparate situation in the rare earth industry has not yet been improved. It can be expected that the future rectification of the rare earth industry will continue to deepen. With the establishment of industry associations, special rare earth invoices, and the introduction of rare earth storage and storage systems, rare earth industry rectification has entered a substantive stage.

Downstream demand growth determined

In recent years, the application of rare earths in new materials has grown rapidly. With increasing attention to energy conservation and environmental protection, the demand for rare earths in permanent magnetic materials, hydrogen storage materials, fluorescent materials, and liquid crystal materials has been determined. In the next few years, the consumption of rare earths will continue to increase by 8%-10%. By 2015, the global demand for rare earths will reach 210,000 tons, and the demand for rare earths in China will reach 130,000 tons.

The company is a leading enterprise in the integration of rare earth smelting and processing

The company currently has a complete industrial chain of "concentration → smelting separation → processing → deep processing → application", and even the company also has its own trading company, controls the rhythm of rare earth products put on the market, and has the ability to maintain price stability.

The company is becoming a "specialist" of northern rare earth

At present, the Inner Mongolia Autonomous Region supports companies in the integration and reorganization of rare earth upstream companies, and the company has become the only company in northern China that has been approved to engage in rare earth upstream industry operations.

With the continuous extension of the rare earth downstream industrial chain, the company has further expanded its profitability space. The company has now formed 5000 tons of rare earth polishing materials, 5,000 tons of magnetic materials, 4,000 tons of rare earth permanent magnet alloys, and an annual output of 300 permanent magnet resonators. Production capacity. The company plans to form a production capacity of 30,000 tons/year of magnetic materials and permanent magnetic alloys, 5,000 tons of polishing materials, 1,500 tons of hydrogen storage materials and 300 permanent magnet resonators in the future. Become the leader of the whole industry chain covering five major rare earth functional materials. With abundant rare earth resources, the company has innate cost advantages in the development of rare earth functional materials. It is expected that by 2015, the proportion of rare earth functional materials in the company's profits will increase substantially, and it is expected to account for more than half.

Earnings estimates and investment advice

We forecast that the company's operating revenue for 2012, 2013 and 2014 will be 1.22950 billion yuan, 13.73224 billion yuan and 154.003 billion yuan, respectively, a year-on-year increase of 6.65%, 11.69%, and 12.16%. The net profit of the company was 3.914 billion yuan, 4.405 billion yuan, and 4.990 billion yuan, respectively, a year-on-year increase of 12.52%, 12.56%, and 13.26%, and basic earnings per share were 1.62 yuan, 1.82 yuan, and 2.06 yuan, corresponding to 2012 and 2013 respectively. In 2014, the P/E ratio was 27x, 24x, and 21x. Taking into account the fact that the company, as a leader in the rare earth industry, will gradually increase its control over the rare earth industry in the process of further integration of the rare earth industry, we are optimistic about the company's long-term development prospects, and the current stock price is still undervalued relative to the 27-fold price-earnings ratio in 2012. , maintain "recommended" rating.

risk warning

Rare earth raw material procurement pricing model changes, the risk of rising rare earth costs in the future

Rare earth price risk

The introduction of the national rare earth policy may lead to the risk of significant fluctuations in the stock price.