**Abstract:**
On August 20, the analysts from China Merchants Securities Co., Ltd. released a research report on Antai Technology. The company’s interim report for 2013 showed a decline in both revenue and net profit, falling below expectations. However, analysts anticipate a recovery in the second half of the year for high-speed tool steel and amorphous strip prices, along with an increase in the utilization rate of new production capacity. Based on these factors, they maintain an “Prudently Recommended-A†investment rating.
Antai Technology’s first-half 2013 performance was weaker than expected. The company reported sales revenue of 1.903 billion yuan and a net profit of 0.32 billion yuan, translating to an EPS of 0.0373 yuan. The drop in net profit can be attributed to two main factors: first, a 5% overall revenue decline of 110 million yuan, primarily due to lower sales in special materials and equipment as well as super-hard materials, which fell by 119 million and 30 million yuan respectively. Notably, the high-speed tool steel segment, which is one of the company’s key profit drivers, saw a significant drop of 20.63 million yuan or 79%. Second, the price of amorphous transformers declined during the reporting period, and the State Grid only placed a single bid, which analysts believe negatively impacted the volume and pricing of amorphous ribbon. Additionally, rising costs caused the gross margin for clean energy-related amorphous ribbon products to fall sharply by 16.98%, resulting in a loss of 24.81 million yuan for the period.
Administrative expenses also increased significantly, rising by 1.3 percentage points, mainly due to higher amortization of intangible assets and increased R&D spending.
Despite the challenges, amorphous strips remain a promising market. As the only company globally with large-scale amorphous broadband capabilities, Antai Technology currently has a production capacity of 40,000 tons. Analysts predict that over the next three years (2013–2015), demand for amorphous transformers will reach 880,000 units, corresponding to 430,000 tons of amorphous strip demand. In 2013 alone, demand is estimated at around 90,000 tons, with approximately 45,000 tons needed domestically based on a 50% localization rate.
The company is also focusing on deepening its rare earth permanent magnet product structure. It plans to invest 80.715 million yuan to expand the production capacity of high-performance sintered NdFeB for new energy vehicles by 500 tons per year. Once fully operational by the end of 2014, the company’s NdFeB capacity will reach 3,800 tons.
With several projects currently under construction, the company has seen strong growth in new product sales, which reached 543 million yuan in the first half of 2013, contributing 29.35% to total revenue—up nearly 5 percentage points year-on-year. Analysts expect the sales of amorphous strips to reach between 9,000 and 10,000 tons in the first half of the year, and with a 50% localization rate, annual sales should be secured as production efficiency improves. Therefore, the “Prudently Recommended-A†investment rating remains unchanged.
**Risk Warning:** The actual yield of amorphous strips may not meet expectations, which could impact profitability.
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