JL Mag's 1H EV revenue grew 33%, with orders and robotics projects supporting high capacity utilization in 2H

Overview

This is a summary of key takeaways from JL Mag Rare-Earth Co. Ltd's 1H26 management briefing. The report's core view is that the company's EV business maintained rapid growth through higher selling prices and market share gains, sufficient orders are expected to support high capacity utilization in 2H26, and the humanoid robotics project and new Baotou capacity provide new sources of demand. On this basis, Morgan Stanley assigns an Overweight rating to the H-shares and a target price of HK$27.80.

Core views

First, the report believes that the company's existing orders provide strong support for production in the second half. Management expects capacity utilization to remain high in 2H26 because orders on hand are currently sufficient. Target demand for the new Baotou plant comes not only from robotics but also from other industries, so the absorption of new capacity does not depend on a single application. If new capacity comes online ahead of schedule, it could further boost sales volume, which the report also identifies as an upside-risk scenario. Second, the EV business provides the primary evidence of growth in 1H26. Segment revenue grew 33% YoY, with average selling prices increasing by more than 20% and sales volume growing by less than 10%. Although volume growth was relatively limited, it still outpaced the industry, which the report attributes to market share gains. Revenue growth was therefore driven by both price increases and share expansion, rather than solely by growth in overall industry demand. The robotics business provides another potential growth path. JL Mag has secured a designated project from a leading humanoid robot manufacturer to supply motor rotors and is currently preparing for mass production. The report does not yet provide revenue, volume, or mass-production timelines for the project, but the project designation and the Baotou plant's simultaneous focus on robotics demand indicate that the company is preparing for actual supply to this field. Raw materials and working capital are important operational constraints. In an environment of high rare-earth prices, the company maintains less than one month of raw-material inventory. The report also identifies further increases in rare-earth prices and higher working-capital requirements resulting from a longer cash conversion cycle as downside risks. This means that even with strong downstream orders, raw-material costs and cash tied up in operations could still affect operating performance. Morgan Stanley ModelWare forecasts show that the company's EPS for 2025 through 2028 will be Rmb0.52, Rmb0.79, Rmb1.05, and Rmb1.42, respectively, with 2026—2028 representing forecast values. Net revenue is projected at Rmb7,718mn, Rmb10,950mn, Rmb12,464mn, and Rmb14,228mn, respectively, while ModelWare net profit is projected at Rmb706mn, Rmb1,085mn, Rmb1,427mn, and Rmb1,932mn. As earnings grow, P/E declines from 32.0x to 17.9x, 13.6x, and 10.1x; P/BV declines from 3.0x to 2.3x, 2.1x, and 1.8x; and EV/EBITDA declines from 42.0x to 21.8x, 16.4x, and 12.4x. Over the same period, RNOA rises from 11.6% to 15.5%, 18.4%, and 24.6%; average return on equity rises from 9.7% to 13.6%, 16.2%, and 19.4%; and dividend yield rises from 1.3% to 2.4%, 3.1%, and 4.2%. These forecasts reflect the report's assumptions of gradual improvements in revenue, profit, and returns on capital. In terms of valuation, the H-shares are rated Overweight, the industry view is Attractive, and the target price is HK$27.80. Relative to the August 20, 2026 closing price of HK$16.60, the report indicates upside of 67%. The 52-week price range over the same period was HK$29.30—15.74, market capitalization was Rmb33,740mn, and average daily trading value was HK$196mn. The price target is based on a discounted cash flow model forecasting through 2035 and uses a 10.8% cost of equity, including a beta of 1.1, a risk-free rate of 2.7%, and an equity risk premium of 7.3%, with a 4% perpetual growth rate after the explicit forecast period. The H-share target price is then converted from the A-share target price using a 50% A/H premium and an exchange rate of 0.88 HKD/CNY. The 50% premium assumption is based on JL Mag's latest A/H premium level. Scenario risks are two-sided. New capacity coming online ahead of schedule and stronger-than-expected downstream demand could result in sales volume and performance exceeding the base-case assumptions. Conversely, a longer cash conversion cycle, rising rare-earth prices, weaker-than-expected downstream demand, and efforts by the US and EU to reduce reliance on Chinese rare-earth magnets could weaken the growth path underpinning the report.

Analysis framework

The report first extracts information from the management briefing concerning orders, capacity utilization, volume and price changes in the EV business, robotics projects, and raw-material inventory. It then uses ModelWare forecasts to connect changes in revenue, profit, returns, and valuation multiples. Next, it derives the A-share valuation basis using a DCF forecast through 2035 and converts the H-share target price using an A/H premium and exchange rate. Finally, it assesses two-sided risks arising from capacity commissioning, downstream demand, raw-material prices, the cash conversion cycle, and changes in overseas supply chains.

Methodology notes

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Volume-price decomposition of EV business revenue

  The report decomposes the EV business's 33% revenue growth in 1H26 into average selling price growth of more than 20% and sales volume growth of less than 10%, further noting that volume growth outpaced the industry due to market share gains.

• Valuation MethodDCF Discounted Cash Flow

  Discounted cash flow model forecasting through 2035

  The report discounts future cash flows through 2035 during the explicit forecast period to present value and applies a 4% perpetual growth rate to subsequent cash flows to establish the valuation basis for the price target.

• Quantitative/Factor/Portfolio TheoryCAPM Capital Asset Pricing

  Cost of equity determined by beta, the risk-free rate, and the equity risk premium

  The DCF uses a 10.8% cost of equity, with parameters including a beta of 1.1, a risk-free rate of 2.7%, and an equity risk premium of 7.3%, reflecting the required risk discount for equity cash flows.

• Corporate Fundamentals and Financial Framework

  Morgan Stanley ModelWare framework

  The report's forecasts for revenue, net profit, EPS, returns, and valuation multiples are all based on the Morgan Stanley ModelWare framework to maintain consistency between operating forecasts and financial metrics.

• Valuation Method

  A/H premium and exchange-rate conversion

  The report derives the H-share target price from the A-share target price using a 50% A/H premium and an exchange rate of 0.88 HKD/CNY, with the premium based on JL Mag's latest A/H premium level.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• JL Mag Rare-Earth Co. Ltd (6680.HK)

  The primary subject of the report's rating and target price; the H-share target price is converted from the A-share target price using an A/H premium and exchange rate.

  Strengths

  Sufficient orders support high capacity utilization in 2H26, EV business revenue grew 33% with volume growth outpacing the industry, and the company secured a designated humanoid robot motor rotor project.

  Weaknesses

  Raw-material inventory is less than one month, and a longer cash conversion cycle could increase working-capital requirements.

  Comparison

  Although EV sales volume grew by less than 10%, it outpaced the industry, and the report believes the company gained market share.

  Risks

  Rising rare-earth prices, weaker-than-expected downstream demand, and reduced reliance on Chinese rare-earth magnets in the US and EU.

• JL Mag Rare-Earth Co. Ltd (300748.SZ)

  The same company's A-share security, whose target price serves as the valuation starting point for converting the H-share target price.

  Strengths

  Shares with the H-shares the operating foundation provided by EV business growth, orders, robotics projects, and new capacity.

  Weaknesses

  Likewise constrained by raw-material costs, the cash conversion cycle, and working-capital requirements.

  Comparison

  The H-share target price is derived from the A-share target price using the latest 50% A/H premium and an exchange rate of 0.88 HKD/CNY.

  Risks

  The pace of new capacity commissioning, downstream demand, rare-earth prices, and overseas supply-chain diversification could all affect operating and valuation assumptions.

Key data

• 1H26 EV business revenue growth33% YoY growthJointly driven by average selling price growth of more than 20% and sales volume growth of less than 10%.
• EV business sales volume growthLess than 10%Still faster than the industry, which the report attributes to market share gains.
• Raw-material inventoryLess than 1 monthLow inventory maintained in an environment of high rare-earth prices.
• EPS (2025/2026e/2027e/2028e)Rmb0.52 / Rmb0.79 / Rmb1.05 / Rmb1.422026—2028 are Morgan Stanley forecasts.
• Net revenue (2025/2026e/2027e/2028e)Rmb7,718mn / Rmb10,950mn / Rmb12,464mn / Rmb14,228mnModelWare financial forecasts.
• ModelWare net profit (2025/2026e/2027e/2028e)Rmb706mn / Rmb1,085mn / Rmb1,427mn / Rmb1,932mnThe forecasts show net profit increasing year by year.
• P/E (2025/2026e/2027e/2028e)32.0x / 17.9x / 13.6x / 10.1xGradually declines as forecast earnings grow.
• P/BV (2025/2026e/2027e/2028e)3.0x / 2.3x / 2.1x / 1.8xModelWare valuation metrics.
• EV/EBITDA (2025/2026e/2027e/2028e)42.0x / 21.8x / 16.4x / 12.4xDeclines as the forecast period progresses.
• RNOA (2025/2026e/2027e/2028e)11.6% / 15.5% / 18.4% / 24.6%Forecast return on net operating assets continues to improve.
• Average return on equity (2025/2026e/2027e/2028e)9.7% / 13.6% / 16.2% / 19.4%2026—2028 are forecast values.
• Dividend yield (2025/2026e/2027e/2028e)1.3% / 2.4% / 3.1% / 4.2%Based on ModelWare forecasts.
• H-share target price and upsideHK$27.80; 67%Relative to the August 20, 2026 closing price of HK$16.60.
• DCF cost of equity10.8%Based on a beta of 1.1, a risk-free rate of 2.7%, and an equity risk premium of 7.3%.
• DCF explicit forecast period and perpetual growth rateForecast through 2035; 4% perpetual growth rateUsed in the discounted cash flow valuation for the price target.
• H-share target price conversion assumptions50% A/H premium; 0.88 HKD/CNYThe H-share target price is converted from the A-share target price, with the premium based on the latest A/H premium.

Impact & implications

The report believes that volume and price growth in the EV business, market share gains, and sufficient orders can support high capacity utilization in 2H26, while the humanoid robotics project and new Baotou plant broaden potential sources of demand. The improvements in revenue, profit, and returns in the ModelWare forecasts form the operational basis for the Overweight rating and target price, but this path still depends on capacity commissioning, downstream demand, rare-earth costs, cash conversion, and changes in overseas customers' reliance on Chinese rare-earth magnets.

Risks

• Upside risk: If new capacity comes online ahead of schedule, it could further increase the company's sales volume.
• Upside risk: Stronger-than-expected downstream demand could result in operating performance exceeding the base-case assumptions.
• Downside risk: A longer cash conversion cycle could lead to higher working-capital requirements.
• Downside risk: Further increases in rare-earth prices could create cost pressure.
• Downside risk: Weaker-than-expected downstream demand could reduce sales volume and capacity utilization.
• Downside risk: Reduced reliance on Chinese rare-earth magnets in the US and EU could affect overseas demand.

What to watch

• Monitor whether sufficient orders on hand enable the company to maintain high capacity utilization in 2H26.
• Monitor the commissioning schedule of the new Baotou plant and its order intake from robotics and other industries.
• Monitor progress in preparations for mass production of the humanoid robot motor rotor project.
• Monitor raw-material inventory of less than one month and changes in the cash conversion cycle amid high rare-earth prices.
• Monitor the strength of downstream demand and progress in overseas markets' efforts to reduce reliance on Chinese rare-earth magnets.