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China Rare Earth Holdings Ltd., 00769.HK - Company Profile
Chairman	Qian Yuan Ying
Share Issued (share)	2,342,000,000
Par Currency	Hong Kong Dollar
Par Value	0.1
Industry	Nonferrous Metal
Corporate Profile	Business Summary: The principal activities of the Group are manufacturing and sales of rare earth products and refractory products. Performance for the year: For the year ended 31 December 2019, the Group recorded revenue of approximately HK$1,018,535,000, up by about 13% when compared to approximately HK$902,095,000 in 2018. As the rare earth industry continued to improve, net profit was recorded at approximately HK$39,587,000 for 2019, a turnaround from a net loss of approximately HK$7,376,000 in 2018, and gradually improved results. Earnings per share was approximately HK 1.66 cents (loss per share was approximately HK 0.23 cents for 2018). Business Review Rare Earth Business In 2019, China’s rare earth market continued to improve. Influenced by the increasingly regulated industry and the reduced supply of mineral resources, together with the restriction in the import of Myanmar’s rare earth resources, the price trend of the domestic rare earth market experienced differentiation. The market price of heavy rare earth increased sharply, while the market price of light rare earth fell slightly. In general, the market price of heavy rare earth greatly increased at the beginning of the year due to the closure of customs in Myanmar. Till the third quarter, the price decreased accordingly due to the re-opening of the customs. In the fourth quarter, however, due to the closure of the customs again, the market price rebounded. The market price of light rare earth hovered at a low level at the beginning of the year. In the second quarter, under strict environmental supervision and inspections, some rare earth separation enterprises reduced production or halted production, causing the sudden increase in the market price, however, the price gradually decreased in the second half of the year. During the year, the Group sold around 1,100 tonnes of rare earth products, down by about 30% compared with last year. However, as the Group adjusted the sales combination of rare earth products mix and increased the sales portion of high-value products, the Group sold more high-priced products, such as terbium and dysprosium, and less low-priced products, such as lanthanum, cerium and yttrium as compared to last year. Hence, the average selling price of rare earth products increased. Currently, the rare earth products sold by the Group are mainly praseodymium, neodymium, terbium and dysprosium, which can be used in magnetic materials. In 2019, the Group’s revenue from rare earth segment was approximately HK$691,918,000, an increase of about 25% over last year. Compared with last year, the average price of heavy rare earth such as terbium oxide and dysprosium oxide sold by the Group increased by about 20% and 50%, respectively while the prices of other products, such as lanthanum oxide, praseodymium neodymium oxide and yttrium oxide, were similar to those of last year, with variation within 5%. At the beginning of 2019, the government of Yixing City, Jiangsu Province in China began to enforce the requirement as stipulated in the revision of “Regulations on the Prevention and Control of Water Pollution in Taihu Lake in Jiangsu Province” (江蘇省太湖水污染防治條例). The sewage and drainage pipes in the whole city were rearranged and laid. The Yixing plant of the Group is situated on the bank of Taihu Lake. Since the wet smelting process adopted by the Group in the production of rare earth oxides requires wastewater treatment, the relevant arrangements affected the Group’s normal production of rare earth oxides. In addition, the import of rare earth resources in China was greatly reduced in the year, the national rare earth production directives was also strictly implemented. The Group adjusted its strategic planning in a timely manner and increased outsourced products to supplement the reduction of its production to meet the demand of customers for common products. Meanwhile, the Group actively implemented cost control and disposed certain poorly performed equipment. The rare earth segment was successfully turned from deficit into profit. The reduction of production caused the increase in average cost and lowered the increment of the gross profit margin of rare earth products. The gross profit margin of the Group’s rare earth segment was about 2% in 2019. During the year, the Group focused on the production of high-end products, such as oxides in nanoscales, which helped to promote high-value-added industry development of rare earth. By market, sales growth mainly came from domestic customers. The Mainland China market accounted for about 95% of the Group’s rare earth revenue. Japan and Europe markets accounted for about 4% and 1%, respectively. Other markets accounted for a small share. Refractory Materials Business The Group’s refractory materials segment posted revenue of approximately HK$326,617,000 for 2019, decreased by about 6% compared with 2018. The segmental gross profit margin was 18%. During the year under review, steel, glass and non-ferrous metal industries in China declined due to the economic slowdown and environmental protection requirements, which underscored the surplus problem in the refractory industry. Although the refractory materials market was under pressure, the Group won the trust of customers by ensuring product quality and excellent service. The Group did not engage in irrational price competition and focused on quality improvement. Although the Group might lost some customers with a preference for low-price products, it consolidated a group of high-quality partners who grow together with the Group. During the year, some customers who refocused on product quality were once again becoming the target customers of the Group. With the brand advantages, the Group sold approximately 28,300 tonnes of refractory materials and high-temperature ceramics products, slightly increase with less than 5% when compared to last year. Average selling price of major products like fused magnesia-chrome bricks and alumina-graphite bricks increased by about 10% against last year’s price. As for casting materials and high-temperature ceramics, their average selling price increased by approximately 20%. The related sales revenue was about HK$278,248,000, increased by about 8% compared to that in 2018. The gross profit margin maintained at approximately 21%. Regarding magnesium grains business, due to the soft market of refractory materials and the continuous implementation of environmental protection supervision in the region of Anshan and Haicheng in Liaoning Province of China, some substandard magnesium mines were shut down. The operating environment of magnesium grains business was poor during the year. In 2019, the Group only sold approximately 17,100 tonnes of magnesium grains products, decreased by approximately 20% compared with last year. Average product price was decreased by over 25% year-on-year. Revenue from the sale of magnesium grains for the whole year was approximately HK$48,369,000, a decrease of about 46% compared with approximately HK$90,052,000 in 2018. Gross profit margin declined to approximately 9%. Regarding market distribution, Mainland China remained the major market for the Group’s refractory materials business and accounted for about 81% of the segmental revenue. Japan market accounted for about 14%. Other markets in Asia, South America and Europe contributed to the remaining 5%. Prospects: Rare earth elements have unique physical and chemical properties, resulting in wide range application in various industries including modern high-tech products and traditional products. The development of electronic products, medical equipment, electric vehicles, aircraft turbine engines, and missile guidance systems is inseparable from rare earth which cause social demand for rare earth continues to increase. Rare earth is vital to the high-tech industry and plays a critical role in technological innovation. However, mining, extraction, and smelting of rare earth are costly and affect the natural ecological environment. China is the largest producer of rare earth in the world. Department of Defense in the United States (“US”) is unavoidably to be an indirect customer of Chinese rare earth enterprises. The US military industry warned that dependence on China’s rare earth supply is its weakness. High-tech industries, one of the pillars of the US economy, cannot sustain without rare earth materials. Due to the importance of rare earth to the US, the market has paid attention to whether rare earth was involved in each round of the Sino-US trade negotiations. The Group expects the Chinese government will continue to launch policies to rectify the operation of the rare earth industry, maintain the strategic position of rare earth in the world and support the long-term development of the rare earth industry in China. According to the notice on mining, smelting and separation quota of rare earth as well the mining quota of tungsten issued by the Ministry of Industry and Information Technology and the Ministry of Natural Resources of China in 2019, the relevant quota should be allocated to key enterprises with advanced technology and equipment and high standard of environmental protection, and be further concentrated. In response to the national call, the Group will continue to be committed to developing into high value-added. At the end of 2019 and the beginning of 2020, the Group planned to revamp its rare earth workshop technology to optimise the existing production process, reduce consumption and save costs. On the other hand, the adjustments made by the Group to support the municipal government’s sewage discharge pipeline layout have been basically completed and will put into use after acceptance by the local government. By then, the Group’s rare earth production technology will be improved, aligning with the state’s policy of promoting the development of high-quality rare earth industry. In order to facilitate the rare earth business process, the Group will actively seek potential business partners while strengthening cooperation with existing suppliers, so as to ensure the sufficiency of supplies to meet customers’ needs. In terms of refractory materials, the operating environment during the year is not ideal. However, refractory products are necessary materials for the construction of many heavy industries. It is believed that the market has a solid demand for refractory materials due to the increasing domestic infrastructure projects in China and the guidance of the national “Belt and Road” initiative. With outstanding product quality and excellent customer service, the Group remains confident in its business prospects. In addition, in order to increase product variety and quality to meet customers’ demands, the Group stepped up its technical cooperation with a Japanese customer in the third quarter of 2019. The new technologies and production flow management brought by the partnership improves the Group’s development in automated refractory materials production process. It is expected that the cooperation will contribute to the Group’s business from 2020. Besides, the Group stress the importance on resources allocations and plans to undergo vertical integration. It has decided an acquisition of a magnesite mine in Northeast China and the plan is expected to be implemented shortly after the completion of due diligence process, which could bring synergistic effects, reduce costs and improve efficiency of the Group. During the first quarter of 2020, coronavirus disease was broken out in the Mainland China and has spread across the rest of the world. Business and economic activities have seriously been affected. Preventive measures taken by the local government limited the plant operation and transportation logistics. Currently it is unable to estimate the impact on the Group’s business. The Group will keep monitoring the situation and react promptly

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Public company info - China Rare Earth Holdings Ltd. , 00769.HK