Zhongtai Securities: Jinli permanent magnet express growth of low-cost rare earth permanent magnet leader

Jinli permanent Magnet is a leading enterprise in domestic research and development, production and sales of high-performance NdFeB permanent magnet materials.

The company's permanent magnet materials are widely used in wind power generation, new energy vehicles and auto parts, energy-saving frequency conversion air conditioners, energy-saving elevators, robots and intelligent manufacturing, 3C and other fields, and has established long-term and stable cooperative relations with leading enterprises at home and abroad in various fields. The company was invested and established by Reed Venture Capital in 2008, focusing on NdFeB permanent magnet materials, landed on the new third board in 2015, listed on the gem in September 2018, the current production capacity of the company is 15000 tons, it is planned to reach 23000 tons in 2022 and 40000 tons in 2025.

Industry competition pattern: high-performance NdFeB has large space, fast growth and high barriers.

1) under the background of "carbon neutralization", high-performance NdFeB maintains a high boom: rare earth NdFeB permanent magnet materials made of rare earth materials have the characteristics of high remanence, high coercivity and high magnetic energy product, and are widely used in many industrial fields, such as automobiles, new energy vehicles, wind power, energy-saving elevators and air conditioners, among which new energy vehicles are the fastest growing field, and the CAGR is expected to reach 37% in 2020-2023.

2) the industry boom is polarized, and high-performance NdFeB has higher barriers: low-end magnetic materials are fully competitive and have a lower profit level, while high-end NdFeB has higher and higher requirements for Know-how. Take new energy vehicle products as an example, they generally need to go through a 3-5-year certification cycle for overseas car companies, and have strict requirements on the financial strength, R & D strength, process control, production capacity and scale of enterprises. Therefore, the profit level of high-performance NdFeB magnetic materials is higher.

The company's core competitiveness: resources, customers, R & D casting company moat.

1) the rapid expansion of the production capacity of high-performance magnetic materials: by the annual report of 2020, the company's current magnetic production capacity is 15000 tons, second only to the third Ring Road of China Science and Technology, and Baotou has a planned production capacity of 8000 tons. It is planned that the company's production capacity will reach 23000 tons in 2022, and the company's total production capacity will reach 40000 tons in 2025.

2) backed by Ganzhou rare earths, the raw materials are fully guaranteed: Ganzhou rare Earth Group is the company's founding shareholder, the sole mining owner of Ganzhou rare earth resources, and the world's largest supplier of medium and heavy rare earths, with an annual rare earth quota of about 9000 tons, accounting for about 60% of the national ionic ore quota.

3) significant customer advantage, entering the core supply chain system: the company enters the supply chain of many leading companies in the global automotive industry, and obtains a number of international and domestic automotive customer project fixed points, including Tesla, BYD, Volkswagen MEB platform, General BEV3 platform, United Automotive Electronics, Bosch Group, Ulay, ideal Automobile and so on.

4) pay attention to research and development to build product competitiveness: the company has formed and mastered six self-owned core technology systems and patent systems based on grain boundary penetration technology, formulation system, fine grain technology, primary forming technology, production process automation technology and high corrosion resistance new coating technology; 5) profitability is the same as industry leadership: the company's gross profit margin and ROE profit indicators are in the industry leading level.

The company has high growth and is rated as "overweight". Assuming that the production of NdFeB magnetic blank in 2021, 2022, and 2023 is respectively 14000, 18000, 23000 tons, the company's net profit in 2021, 2022, is expected to be 3.91,5.77 and 791 million yuan respectively, with a market capitalization of 15.7 billion as of April 8, 2021, corresponding to a PE of 4027x20X from 2021 to 2023, giving the company a "overweight" rating.

Risk tips: fluctuations in the prices of main products, fluctuations in raw material costs, changes in industrial policies, lower-than-expected project progress, deviation in demand measurement, and the risk of lagging behind in the use of public information in research and reporting.

China's leading supplier of NdFeB permanent magnet materials

Focus on permanent magnet materials industry, by point and area layout of multi-field market

Jinli permanent Magnet is a leading enterprise in domestic research and development, production and sales of high-performance NdFeB permanent magnet materials. The company's permanent magnet materials are widely used in wind power generation, new energy vehicles and auto parts, energy-saving frequency conversion air conditioners, energy-saving elevators, robots and intelligent manufacturing, 3C and other fields, and has established long-term and stable cooperative relations with leading enterprises at home and abroad in various fields. The company was invested and established by Red Venture Capital in 2008, focusing on NdFeB permanent magnet materials, landed on the new third board in 2015, and ranked on the top 100 list of the new third board the following year. Listed on the gem in September 2018, the current production capacity of the company has reached 15000 tons, with a planned production capacity of 23000 tons by 2022 and 40000 tons of blanks by 2025.

Centralized ownership structure and perfect incentive mechanism

The ownership structure of the company is relatively concentrated. Cai Baogui, Hu Zhibin and Li Xinnong are the actual controllers of the company. They hold 35.03% of the shares through Reed Venture Capital, 8.72% of Jinfeng Holdings, 6.25% of Ganzhou rare Earth and 5.55% of Ganzhou Dianchang. The third largest shareholder, Ganzhou rare earths, is the leader of China's rare earth industry and the largest resource platform for heavy rare earths in the south, ensuring the company's long-term and stable supply of rare earths. The more centralized ownership structure ensures that the company's management is strong and effective, and the strategic layout will be implemented for a long time. In addition, the company has a number of subsidiaries, involving a number of regions at home and abroad.

The equity incentive system is deeply bound to senior executives and core technical backbones. The company issued a restricted stock incentive plan in August 2020, implementing a restricted stock incentive plan for a total of 222 directors, senior managers and core technical personnel. In October 2020, a total of 200,000 shares were awarded to five foreign core technicians. The restricted shares of the incentive program are divided into three lifting periods within 48 months.

The company's products are mainly high-performance NdFeB magnetic materials, mainly concentrated in wind power, energy-saving frequency conversion air conditioners, new energy vehicles and auto parts. At the beginning of its establishment, the company mainly concentrated in the field of wind power, accounting for about 60%. With the implementation of the new energy efficiency standards, the proportion of income in the field of frequency conversion air conditioning has gradually increased. In recent years, the company has focused on developing customers in the field of new energy vehicles and entered the supply chain system of first-line automobile companies such as Tesla. In the future, the company's share of revenue in the field of new energy vehicles may be greatly increased. As of the 2020 annual report, revenue from wind power accounts for about 36%, energy-saving frequency conversion air conditioning accounts for about 36%, and new energy vehicles and auto parts account for about 13.48%. It is expected that the proportion of revenue in the field of new energy vehicles will increase rapidly and is expected to become the company's largest source of revenue.

The company's performance is growing rapidly. In 2020, the company realized operating income of 2.419 billion yuan, an increase of 42.58% over the same period last year, and the net profit of shareholders belonging to listed companies was 244 million yuan, an increase of 55.84% over the same period last year. In terms of sub-sectors, the revenue in the field of new energy vehicles reached 326 million yuan, up 48.07 percent over the same period last year; the income in the field of energy-saving frequency conversion air conditioners reached 878 million yuan, an increase of 107.99 percent over the same period last year; and the revenue in the field of wind power reached 879 million yuan, an increase of 2.78 percent over the same period last year. Product structure optimization helped the company raise its gross profit margin (2.58pcts).

Industry competition pattern: under the background of high-performance NdFeB with large space, fast growth and high barriers to "carbon neutralization", high-performance NdFeB maintains a high boom.

NdFeB magnetic material is the third generation rare earth permanent magnet, which is the most widely used. Permanent magnetic materials can be divided into three categories: rare earth permanent magnets, ferrite permanent magnets and other permanent magnets. The rare earth NdFeB permanent magnet material made of rare earth materials has the characteristics of high remanence, high coercivity and high magnetic energy product, so it is widely used in many industrial fields, such as automobile, new energy vehicle, wind power, energy-saving elevator and air conditioning. In particular, in recent years, with the development of new energy vehicles, the magnetic demand of motor of new energy vehicles has also become the main growth point of the demand for high-end NdFeB magnetic materials.

New energy vehicles drive the rapid growth of NdFeB demand. High-performance NdFeB is mainly used in permanent magnet Synchronize motor in electric vehicles. Permanent magnet Synchronize motor has higher energy conversion efficiency and lower energy consumption. At the same power, permanent magnet Synchronize motor is smaller and more efficient. Therefore, permanent magnet Synchronize motor is widely used in new energy vehicles. The global new energy vehicle market has ushered in a policy increase period, the volume of high-quality models such as Tesla, the core drivers of the market have changed to endogenous growth, and the penetration of new energy vehicles is expected to accelerate. Assuming that the global production of new energy vehicles reaches 8.21 million in 2023, the demand for NdFeB will reach 28490 tons in 2023, and the CAGR will be 37% in 2020-2023.

The improvement of energy efficiency standards drives structural growth in the field of household appliances. Starting from July 1, 2020, air conditioners will implement a new energy efficiency standard. The new standard level 1 energy efficiency index has reached the international leading level, and the energy efficiency access requirements of frequency conversion air conditioners (level 3) are basically the same as those of the European Union and the United States. Benefit from the improvement of energy efficiency standards, air conditioning and air conditioning NdFeB will show structural growth-fixed frequency and frequency conversion have 1-5 levels, but fixed frequency energy efficiency standards are generally on the low side. At the end of 2019, the permeability of domestic NdFeB variable frequency air conditioners is less than 40%, while the market share of Japanese variable frequency air conditioners is as high as 90%, which is expected to rise rapidly to more than 80%. Assuming that the permeability of NdFeB in frequency conversion air conditioners reaches 90% in 2023, the demand for NdFeB will reach 21068 tons.

The permeability of direct drive fans has gradually increased, and the demand for NdFeB in the field of wind power has increased steadily. On October 14, the "Wind Energy Beijing Declaration" advocated that in order to achieve the goal of starting convergence with the goal of carbon neutrality, in the 14th five-year Plan, the development space for wind power should be set in line with the national strategy of carbon neutralization: to ensure that the average annual installed capacity of wind power should be above 50GW. After 2025, the average annual installed capacity of wind power in China should not be less than 60GW, at least 800GW by 2030, and at least 3000GW by 2060. NdFeB permanent magnet material is mainly used in the production of permanent magnet direct drive fan. Compared with doubly fed asynchronous fan, permanent magnet direct drive fan has the advantages of simple structure, low operation and maintenance cost, long service life, good grid connection performance, high power generation efficiency and so on. At present, the permeability of the global wind power permanent magnet direct drive motor is 30%. Assuming that the permeability increases by 1 percentage point per year, based on the consumption of NdFeB per MW permanent magnet direct drive motor, it is estimated that the demand for high-performance NdFeB caused by the new installation in the wind power field in 2023 will reach 29100 tons.

Smart phone wireless magnetic charging creates a new growth point. On October 14, Apple released iPhone12, which introduced a new wireless charging scheme-wireless magnetic charging technology. There is a circle of magnets (NdFeB permanent magnet) on the back of the iPhone12, 36 magnets inside and two large magnets on the outside, which play a positioning role, and use the "NSNS" magnetic pole staggered arrangement to accurately locate and match the mobile phone and the wireless charger through the attraction of the magnet. This may become another growth point for downstream applications of NdFeB permanent magnets, and is expected to further expand the growth space of NdFeB permanent magnets. Assuming that iPhone sales are 229 million units in 2023, and assuming that the average unit consumption of NdFeB increases gradually (the unit consumption of different types of NdFeB is slightly different, and the amount of iPhone12 mini is less than the average consumption, it is assumed that the proportion of iPhone12 mini shipments decreases year by year, the magsafe penetration rate is 10%, and the demand for NdFeB can reach 9102 tons.

Under the background of "carbon neutralization" era, the trend of electrification is clear, and the demand for high-performance NdFeB is expected to maintain a medium-and long-term high business cycle. Energy transformation has become a global consensus, major economies have formulated carbon neutralization plans, the electrification wave has begun, with the exception of new energy vehicles, wind power, variable frequency air conditioners and consumer electronics, emerging demand continues to emerge. the demand for high-performance NdFeB is expected to maintain rapid growth.

The high-performance NdFeB market has high barrier property and the industry boom is polarized.

NdFeB magnetic materials with different performance levels are applied in different application fields, but the emerging fields often have higher performance requirements, so it is difficult to replace high-end NdFeB magnetic materials. The sintered NdFeB permanent magnets with the sum of intrinsic coercivity (Hcj,kOe) and maximum energy product (BH) max,MGOe) greater than 60 belong to high performance NdFeB permanent magnets.

Full competition in the domestic low-end NdFeB market: there are more than 200 NdFeB magnetic material production enterprises in China, and the industry concentration is not high. Due to the low barriers to entry and small product differentiation in the low-end NdFeB field, the bargaining power of manufacturers is poor, and the overall profitability of the industry is low.

High-end NdFeB has high barrier property: 1) High-end NdFeB has higher and higher requirements for Know-how. New energy vehicle products, for example, generally need to go through a 3-5-year certification cycle, and have strict requirements on the financial strength, R & D strength, process control, production capacity and other aspects of the enterprise; 2) because the construction of high-end production line requires higher capital expenditure (for example, 1000 tons of high-performance NdFeB magnetic material project corresponds to 100-200 million capital expenditure), and it takes about 2 years to build and put into production cycle.

Due to the high barriers of high-and low-end magnetic materials and better supply and demand structure, there is a significant difference in the profit level of high-end NdFeB. The gross profit margin of high-end demand products can often reach 30%, while the gross profit margin of low-end products is often less than 20%. This also leads to the tilt of industrial resources to high-end NdFeB, high-end NdFeB industry will continue to appear new profit growth points, the industry will develop in the direction of high input, high output value and high profit.

The company's core competitiveness: resources, customers, R & D and casting company moat company high-performance magnetic material production capacity rapid expansion

The company's magnetic production capacity is expanding rapidly. In recent years, especially after listing, the company's magnetic production capacity has expanded rapidly. by the annual report of 2020, the company's current blank production capacity is 15000 tons, second only to the third Ring Road of China Science and Technology, and the planned blank production capacity of Baotou Base is 8000 tons. it is planned that the blank production capacity of the company will reach 23000 tons in 2022, and the total blank production capacity of the company will reach 40000 tons in 2025, marching into the leading enterprises of high-performance magnetic materials.

1) the fund-raising project "annual output of 3000 tons of new energy vehicles and high-end magnetic materials in 3C field" will be steadily promoted in 2020. after the completion of the project, the production capacity of sintered NdFeB blanks will be increased by 3000 tons per year. Finally, the sales of new energy vehicle products (finished products) and 3C products (finished products) are 1400 tons / year, and the business income is expected to increase by 1.06 billion yuan after the project reaches production. The new net profit is about 158 million yuan (about 65% of the company's net profit in 2020)

2) the company invested 575 million yuan to build a "high-performance rare earth permanent magnet material base project" in Baotou. At present, the project has started construction. After reaching production, the project will form a high-performance rare earth permanent magnet material production capacity of 8000 tons per year and supporting electroplating production line. According to the EIA report, the annual output of finished magnetic steel can reach 6100 tons.

Backed by rare earths in Ganzhou, the raw materials are fully guaranteed.

The company has sufficient raw material resources guarantee capacity. The cost of raw materials accounts for about 80% of the cost of finished products, mainly rare earth elements such as praseodymium-neodymium alloy, dysprosium and terbium. The company has reached a strategic partnership with Ganzhou rare earth and northern rare earths to ensure a stable supply of rare earth raw materials by signing a long association. In addition, other suppliers include Sichuan Jiang Copper, Chenguang rare Earth and so on. Ganzhou is the main resource of medium and heavy rare earths in the world, with reserves of 210000 tons. Among them, Ganzhou rare Earth Group is the founding shareholder of the company, holds 6.49% of the company, is the only mining right holder of Ganzhou rare earth resources, and is also the largest supplier of medium and heavy rare earths in the world. It has 44 mining warrants of southern ionic rare earths and an annual rare earth quota of about 9000 tons, accounting for about 60% of the national ionic mineral quota. In 2020, the company signed a "Cooperation Agreement" with South rare Earth International Trading Co., Ltd., a subsidiary of Ganzhou rare Earth Group, which can ensure the long-term stable supply of rare earth raw materials, especially medium and heavy rare earths. At the same time, the company and Sichuan Jiangtong rare earth joint venture established Sichuan Jiangtong rare earth magnetic material Co., Ltd., the cooperative relationship is relatively stable. In addition, the company has built a 8000-ton high-performance magnetic material project in Baotou. Baotou area has sufficient rare earth resources, accounting for about 83% of the country's rare earth resources.

Significant customer advantage, entering the core supply chain system

The company continues to focus on new energy and energy saving and environmental protection, focusing on new energy vehicles and auto parts, energy-saving frequency conversion air conditioners, wind power generation, 3C, energy-saving elevators, robots and intelligent manufacturing, rail transit and other core applications.

New energy vehicles and parts: in 2020, the company's revenue in the field of new energy vehicles and auto parts reached 326 million yuan, an increase of 48.07% over the same period last year. About 450000 new energy vehicles can be assembled with magnets. The company has entered the supply chain of a number of leading companies in the global automotive industry, and has obtained a number of international and domestic automotive customer project assignments, including Tesla, BYD, Volkswagen MEB platform, General BEV3 platform, United Automotive Electronics, Bosch Group, SAIC Group, BAIC New Energy, Lulai, ideal Automobile and so on.

Wind power: the company's wind power revenue reached 879 million yuan in 2020, an increase of 2.78% over the same period last year. In 2020, the company shipped wind power magnetic steel products with an installed capacity of about 10GW. The core customers include Goldwind Technology, Siemens-Gomeisa and so on.

Energy-saving frequency conversion air conditioners: the company is an important magnet supplier of Midea, Gree, Shanghai Haili, Mitsubishi and other well-known brands. In 2020, the company's income in the field of energy-saving frequency conversion air conditioners reached 878 million yuan, an increase of 107.99% over the same period last year. In 2020, the company shipped about 41 million assembling air conditioning compressors.

Pay attention to research and development to build product competitiveness

The production process of high performance NdFeB permanent magnet material is divided into billet process and finished product process, in which the billet process mainly includes raw material ratio, vacuum melting, powder production (hydrogen crushing and air flow grinding), orientation profile, high temperature sintering and performance testing. the finished product process mainly includes machining, grain boundary infiltration (some products), surface treatment, magnetization (some products), testing, packaging and delivery.

The R & D innovation-driven company is in the lead in technology. The company has formed and mastered six self-owned core technology systems and patent systems based on grain boundary infiltration technology, formulation system, fine grain technology, primary forming technology, production process automation technology and high corrosion resistance new coating technology. Up to now, the company has a total of 41 patents, including 20 invention patents and 21 utility model patents, among which grain boundary penetration technology has been granted a number of invention patents in China, the United States, the European Union and Japan, which is at the leading level in the industry. In the grain boundary infiltration technology, the rare earth amorphous alloy containing heavy rare earth powder is coated on the surface of the product, and the heavy rare earth atoms are diffused from the surface of the product to the center of the product under high temperature and vacuum conditions. this technology changes the addition of some heavy rare earths from the blank process to the finished product sequence, and the addition mode changes from the whole magnetic addition to the addition of the grain boundary of the magnet, and the volume of the grain boundary in the magnet is relatively small, therefore, This technology can greatly reduce the addition of heavy rare earths.

In recent years, the company's R & D expenditure has increased year by year. In 2020, R & D expenditure is about 103 million yuan, an increase of nearly 60% over the same period last year, accounting for about 4.26% of business income. The company already has the industry-leading lean production capacity, the company's product delivery capacity and production efficiency in the industry in the leading level, won the praise of customers. In 2020, the company won Midea's "Lean conversion excellent supplier", Midea's Mechanical and Electrical Industry Group "efficiency improvement Outstanding supplier", Mitsubishi Electric (Guangzhou) Compressor Company's "VE proposal Award" in 2020, and won the title of Jinfeng Technology quality Credit 5A supplier for six consecutive years from 2015 to 2020, and won Jinfeng Science and Technology "long-term Cooperation Award" and 2020 "Technical support Award". BYD-Fudi Power Co., Ltd. 2020 "excellent quality Award".

Compared with the same industry: leading profitability

Compared with magnetic companies in the same industry, the company is in a leading position in terms of profitability and growth, the asset-liability ratio is higher than that of its peers, and the inventory turnover rate is slightly lower than that of the same industry:

In terms of capacity scale, the company currently has a blank production capacity of 15000 tons, which is second only to the third Ring Road of China Science and Technology.

In terms of growth, the company's operating income growth rate has been maintained at more than 30% in the past three years, which is higher than that of listed companies in the same industry.

In terms of profitability, Jinli permanent Magnet has a significant lead in terms of gross profit margin and ROE, and the company has done a good job in cost control.

In terms of asset-liability ratio, the asset-liability ratio of companies is about 54%, and that of listed companies in the same industry is less than 30%, slightly higher than that of their peers.

In terms of inventory turnover, the company is slightly lower than the listed companies in the same industry, mainly due to the active inventory management in order to prevent the price rise.