Financial reporter Zhang Tingwang
With the outbreak of emerging industries such as new energy vehicles, robots, and industrial energy-saving motors, permanent magnet materials have broad market prospects, however, as the leader of the magnetic material industry, Zhenghai Magnetics has first fallen into the dilemma of "increasing income but not increasing profits".
On the evening of April 24, Zhenghai Magnetics released the first quarter report of 2024, the company's operating income in the first quarter was 1.173 billion yuan, a year-on-year decrease of 14.76%, and the net profit attributable to the parent company was 78.0209 million yuan, a year-on-year decrease of 33.66%.
Image source: 2024 first quarter report
Due to the limited disclosure of the first quarterly report, the reporter analyzed the performance of Zhenghai Magnetics in 2023.
According to the 2023 annual report, Zhenghai Magnetics' main business is divided into two parts: NdFeB permanent magnet material business and new energy vehicle motor drive system business. Among them, NdFeB permanent magnet materials account for more than 98% of the company's revenue.
Image source: Annual Report 2023
It is understood that as the third generation of permanent magnet materials, NdFeB permanent magnet materials are known as "magnetic kings" and are the most widely used magnetic materials in the fields of wind power, energy-saving inverter air conditioning, new energy vehicles and auto parts.
As the middle of the rare earth industry chain, Zhenghai Magnetics mainly carries out a series of production and processing procedures through the purchase of rare earth raw materials and auxiliary metal raw materials, and then provides the finished product, high-performance NdFeB, to motor manufacturers in the industrial chain to obtain profits. According to its introduction, the company is one of the leading enterprises in the domestic high-performance NdFeB permanent magnet material industry.
It is worth noting that the performance of magnetic material companies is often affected by rare earth price fluctuations. In the 2023 annual report, Zhenghai Magnetics said that the main raw materials required for the company's high-performance NdFeB permanent magnet materials business are rare earth metals such as neodymium, praseodymium-neodymium, terbium and ferrodysprosium, as well as rare earth alloys. If the price of rare earth raw materials fluctuates significantly in the future, and the company fails to respond in a timely and effective manner, it may adversely affect the company's profitability.
In 2023, affected by the sharp decline in upstream raw material prices, the revenue of Zhenghai Magnetics' NdFeB permanent magnet materials will decrease by 7% year-on-year.
In the first quarter of 2024, Zhenghai Magnetics' performance will be under pressure again. The company's net profit attributable to the parent company was 78.0209 million yuan, a year-on-year decrease of 33.66%. At the same time, according to Flush iFinD, judging from the data of the first quarter alone, the company's gross profit margin in the first quarter of 2024 is 15.38%, a record low.
Image source: Straight Flush iFinD
However, compared with companies in the same industry, Zhenghai Magnetic's gross profit margin is even more "bad". Flush iFinD shows that there are currently 4 companies in the same industry to disclose a quarterly report, although Zhenghai Magnetics ranks first in terms of revenue scale, but its gross profit margin only ranks fourth, far lower than the nearly 40% sales gross profit margin of Boke New Materials and Galaxy Magnets.
Image source: Straight Flush iFinD
The rare earth industry chain is still in a downward cycle. On April 9, the two rare earth giants of Northern Rare Earth and Baotou Iron and Steel Co., Ltd. announced the trading price of rare earth concentrate in the second quarter, which is also regarded as the vane of the rare earth industry chain by the industry. According to the latest pricing, in the first quarter, the trading price of rare earth concentrate was 20,737 yuan/mt excluding tax, compared with the price in the second quarter and down 19% from the first quarter.
At the same time last year, the trading price of rare earth concentrate of these two major rare earth upstream manufacturers was 31,030 yuan/ton excluding tax. On a year-on-year basis, the price of rare earth concentrate in the second quarter of this year was almost "cut in half". This seems to be an unfavorable sign for Zhenghai Magnetics.
In addition, by the end of 2023, Zhenghai Magnetics has an annual production capacity of 30,000 tons of high-performance NdFeB permanent magnet materials, of which the capacity utilization rate of the East and West plants and Fuhai plants has reached 88%, and the Nantong base has built a production capacity of 12,000 tons, which will enter the ramp-up stage, and the release of new production will not be realized until 2026.
Image source: Annual Report 2023
Finally, it should be pointed out that the net cash flow from operating activities in the first quarter of Zhenghai Magnetics was -137 million yuan, and the operating cash flow was in a state of "blood loss", which indicated that the company's ability to collect sales in the first quarter was weak.