Shenghe Resources: MP Company's "Supply Cut" Has No Significant Impact, Plans to Achieve Revenue of 15 Billion Yuan This Year

In 2024, both revenue and net profit of Shenghe Resources (600392.SH) declined, with the company's performance continuing to face pressure. Meanwhile, the dual impact of supply and demand adjustments and policy-driven changes has led to a "shift" in the company's dual domestic and international layout.

Net Profit Declined for Two Consecutive Years

The 2024 annual report released by Shenghe Resources tonight shows that the company achieved revenue of 11.371 billion yuan last year, down 36.39% YoY, and net profit attributable to the parent company was 207 million yuan, down 37.73% YoY. As a result, Shenghe Resources' net profit has declined for two consecutive years. In addition, the net cash flow generated from the company's operating activities last year plummeted 81.47% to 72.4233 million yuan. In 2022, the net cash flow generated from the company's operating activities was 511 million yuan.

Regarding the reasons for the performance changes, Shenghe Resources explained that in 2024, the market prices of major rare earth products fell significantly YoY, and the market prices of zirconium and titanium products were relatively weak. The average sales price and gross profit margin of the company's main products decreased compared to the same period last year, leading to a decline in the company's profit for the reporting period compared to the same period last year.

By quarter, Shenghe Resources achieved revenue of 3.13 billion yuan in Q4 2024, but the net profit attributable to the parent company of 114 million yuan was only higher than that of Q1 2024 (a net loss of 216 million yuan).

Shenghe Resources is mainly engaged in rare earth mining and beneficiation, smelting and separation, metal processing, rare earth scrap recycling, and zirconium and titanium ore beneficiation. By product, last year, rare earth oxides, rare earth salts, rare earth metals, and rare earth concentrates (including monazite) achieved revenues of 3.324 billion yuan, 60.619 million yuan, 6.126 billion yuan, and 796 million yuan, down 46.12%, 67.15%, 28.99%, and 53.99% YoY, respectively. The gross profit margins of these products were 5.23%, 1.67%, 0.72%, and 18.56%, respectively.

Based on this calculation, Shenghe Resources' rare earth business segment achieved revenue of approximately 10.307 billion yuan in 2024, accounting for 90.64% of the company's revenue.

"In 2025, the company plans to achieve annual revenue of 15 billion yuan (up 31.91% YoY)." Shenghe Resources also emphasized that the aforementioned target is only a planned arrangement of the company, which is greatly affected by market supply and demand, and there is uncertainty as to whether it can be completed as scheduled. It is reported that the company's business plan for this year also includes the orderly promotion of the Leshan 15,000 mt/year polishing powder project, overseas rare earth and zirconium-titanium resource projects, etc.

The annual report shows that due to the acquisition of 100% equity of Chenguang Rare Earth, 100% equity of Kebairui, 100% equity of Hainan Zirconium-Titanium, 65% equity of Baotou Sanlong, 90% equity of Meishan Yinhe, and 65% equity of Shandong Xinfangyuan, Shenghe Resources generated goodwill of 820 million yuan. As of the end of 2024, the impairment provision for the above goodwill was 530 million yuan. At the same time, the book balance of inventory in the company's consolidated financial statements was 4.59 billion yuan, accounting for 29.61% of the total assets at the end of the year, and the provision for inventory decline was 135 million yuan.

MP Company's "Supply Cut" of Rare Earth Concentrate Has No Significant Impact

It is worth mentioning that on the evening of April 21, Shenghe Resources issued a clarification announcement regarding the online reports that "US rare earth producer MP Materials (hereinafter referred to as 'MP Company') announced that it would stop exporting rare earth concentrate to China due to tariffs."

The announcement shows that in January 2024, MP Company renewed a new off-take agreement with Shenghe Resources (Singapore) International Trading Co., Ltd. (hereinafter referred to as "Singapore Shenghe"), a subsidiary of the company, and Singapore Shenghe is the exclusive dealer of MP Company in China. The agreement is valid for 2 years and can be extended for 1 year upon expiration. In addition to rare earth concentrate, the off-take products also include other rare earth products. Shenghe Resources emphasized, "As of now, the off-take agreement signed by both parties is still valid."

Shenghe Resources also admitted, "Currently, due to the tariff hike, MP Company has temporarily stopped exporting rare earth concentrate to China." In its view, the company has established diversified rare earth raw material supply channels, and Sichuan ore, monazite, and imported ore from other countries can serve as alternative supplies. "MP Company's suspension of exporting rare earth concentrate to China will not have a significant impact on the company's production and operation."

Financial data shows that in 2024, Singapore Shenghe achieved revenue and net profit of 1.53 billion yuan and 32.2561 million yuan, accounting for approximately 13.46% and 15.5% of Shenghe Resources' revenue and net profit, respectively.

Shenghe Resources has always claimed, "The company has a dual domestic and international layout, adheres to a market-oriented operation mechanism, and its characteristic is overseas rare earth resources." According to the previously disclosed survey Q&A minutes of Shenghe Resources, MP Company's annual rare earth concentrate production is about 43,000 mt, most of which is off-taken by the company. However, since the commissioning of MP Company's smelting and separation production line in 2023, the amount of rare earth concentrate imported by Shenghe Resources to China has decreased compared to before. At the same time, MP Company entrusts Shenghe Resources to process rare earth oxides into rare earth metals, and the company charges MP Company processing fees.

It is worth noting that in February this year, the MIIT issued the "Interim Measures for the Management of Total Control of Rare Earth Mining and Rare Earth Smelting and Separation (Draft for Public Comment)" (hereinafter referred to as the "Draft for Comment"). After the release of the Draft for Comment, the inclusion of imported ore in quota management has attracted widespread attention.

Cailian Press reporters learned that before the release of the Draft for Comment, Shenghe Resources used domestic resources to carry out rare earth smelting and separation production quotas issued by China Rare Earth Group, and the use of imported rare earth resources did not occupy domestic production quotas.

"Although imported ore has not been included in quota management before, only those who obtain domestic quotas are qualified to engage in the smelting and separation of imported ore, and Shenghe's smelting and separation quotas are also issued by the Rare Earth Group. After being included in management in the future, whether the imported ore quotas will be issued separately or together with domestic ore, we will continue to pay attention," Shenghe Resources said on the investor interaction platform.