With the business of soft magnetic powder cores given the highest priority for development, NBTM’s performance will likely improve significantly, fully benefitting from the high boom in downstream industries, such as photovoltaic (PV) and new energy vehicles (NEVs)。 Moving forward, the Company will realize the integrated development of press and sinter (P&S) of powder metallurgy, metal injection molding (MIM) and soft metal magnetic materials (SMC) to create a high-end manufacturing platform. We forecast its 2022E-24E attributable net profit (ANP) to be Rmb141mn/308mn/420mn. We assign 24x 2023E PE to derive a target price of Rmb12 and initiate coverage with a "BUY" rating.

Company profile: NBTM is currently the sole player that combines three mainstream or trending growth technologies in the powder metallurgy industry, namely P&S, SMC and MIM. NBTM is a domestic P&S leader, with SMC and MIM both in the first tier in China. The Company is positioned to provide optimal material solutions and value-added services for new energy and high-end manufacturing, with three new material technology platforms as its cornerstone. NBTM pre-announced its ANP of Rmb90mn-96mn in 1-3Q22, up by 6%-13% YoY, bringing an inflection point for performance.

The SMC segment is the Company's highest priority for development, with a planned production capacity of over 100ktpa. NBTM’s subsidiary Keda Magnetoelectricity (KDM) is one of the world's leading manufacturers covering a full range of magnetic powder cores, from iron powder cores to high-performance iron-nickel magnetic powder cores. In Jul 2022, the Company acquired Deqing Xinchen New Materials to strengthen its coverage in upstream soft magnetic alloy powder raw materials and promote the upstream and downstream synergistic development of the SMC segment value chain. In Aug 2022, NBTM announced its plan to invest Rmb700mn in Shanxi to build an industrial base with an output of 60ktpa of soft magnetic materials and a planned long-term capacity of 106ktpa. In 1H22, the Company's SMC segment revenue grew by 23.3% YoY, with gross profit margin (GPM) up by 2.3ppts YoY to 20.5%.

The PV and NEV industries are driving up the high growth of demand for metal soft magnetic materials. Backed by stellar performance, metal soft magnetic cores are widely applied in multiple areas, such as PV inverters, NEVs and charging equipment, uninterruptible power supplies and inverter air conditioners. Benefitting from the booming PV and NEV industries, we expect the global demand for metal soft magnetic cores to reach 287kt in 2025, corresponding to a CAGR of 17% over 2021-2025.

MIM segment profitability rebounded significantly, and its leading position in P&S is cemented. NBTM acquired Dongguan Huajing Powder Metallurgy and Shanghai Future High-tech during 2019-2020 to venture into MIM. In 1H22, the Company's MIM segment sales revenue increased by 21.4% YoY, and the operating figures improved significantly. With the increasingly optimized business coverage of its three major bases in Shanghai, Lianyungang and South China, the profitability of NBTM's MIM business is likely to continue to improve. As for the P&S business, the Company’s output of powder metallurgy products reached 52.9kt in 2021, ranking first in China for six consecutive years. Moving forward, NBTM will be actively developing new products and increasing overseas exposure to maintain the stable growth of its P&S business.

Integrating the three major businesses to build the most competitive high-end powder metallurgy manufacturing platform. NBTM's three main businesses belong to the category of powder metallurgy among manufacturing new materials in the broad sense, and they can achieve mutual integration and synergistic development. NBTM's leading P&S pressing technology and MIM injection technology can be applied to the manufacturing of SMC complex-shaped parts and precision small parts, improving the comprehensive competitiveness of the SMC segment. The integration and synergies of the triple growth driver can help the Company expand its business coverage in new energy and high-end manufacturing applications, such as downstream PV, electric vehicles, energy storage, consumer electronics, robotics, 5G communications and high-efficiency motors, and achieve sustainable and effective operational growth.

Potential risks: Downstream demand missing expectations; the Company's expansion plan falling short of expectations; rising raw material prices; regional Covid resurgences in China; intensified sector competition.

Investment recommendation: NBTM is a powder metallurgy leader in China and has prioritized the development of metal soft magnetic powder cores. Benefiting from the high boom of downstream PV and new energy industries, the Company's SMC business is likely to record high growth, alongside sustained growth of its P&S and MIM segments. We forecast its 2022E-2024E ANP to be Rmb141mn/308mn/420mn, equivalent to 2022E-24E EPS forecasts of Rmb0.23/0.50/0.68. With the average comps valuation of 24x 2023E PE for POCO Holding (300811.SZ), Sinomag Technology (300835.SZ), Yunlu Advanced Materials (688190.SH), Yuean Advanced Materials (688786.SH), Yitong New Materials (300930.SZ), and Gian Technology (300709.SZ) based on Wind consensus estimates as a reference, we assign 24x 2023E PE to derive a target price of Rmb12 and initiate coverage with a "BUY" rating.