Where Is the Rare Earth Cycle Now?

In the global manufacturing landscape, Germany leads in the number of “hidden champion” companies, with China closely following. These enterprises, often embedded like capillaries into industrial ecosystems, are the backbone of China’s transition from “Made in China” to “Intelligent Manufacturing.”

Within the rare earth industry chain, Jinli Permanent Magnet (金力永磁) exemplifies such a critical company. Understanding Jinli’s value logic provides key insights into the cyclical nature of the rare earth sector.

01 Global Leadership and Business Footprint

On January 8, 2025, Jinli Permanent Magnet announced its profit guidance for the year, projecting net profit attributable to shareholders between CNY 660 million and 760 million, representing a remarkable 127%–161% year-on-year increase. Non-recurring net profit is expected between CNY 580 million and 680 million, a growth of 241%–300%.

This performance surge is mainly driven by concentrated capacity release in 2025. While maintaining its foundational market in new energy vehicles (NEVs), Jinli has successfully expanded into emerging fields such as humanoid robot motor rotors. Technological advantages have translated directly into production capacity benefits. The dual engines of NEVs and robotics have pushed product sales to historic highs.

Jinli has built a fully integrated industrial chain for high-performance NdFeB permanent magnets, covering R&D, production, and sales. Its product portfolio spans magnetic components, humanoid robot motor rotors, and rare earth recycling, with applications across NEVs and auto parts, wind power, industrial servo motors, robotics, 3C electronics, low-altitude aircraft, energy-efficient elevators, and rail transit.

According to the 2024 annual report, Jinli’s high-performance NdFeB production reached approximately 29,300 tons (+39.5% YoY), while finished product sales totaled 20,900 tons (+37.9% YoY), reflecting simultaneous expansion of production and sales.

Industry statistics confirm Jinli’s global leadership: it accounts for roughly 28% of the global high-performance NdFeB market, maintaining a clear gap above competitors.

On the customer side, Jinli is deeply connected with top-tier companies across sectors. Automotive clients include Tesla, BYD, and leading new car manufacturers; in home appliances, partners include Midea and Gree; in robotics, the company collaborates with Tesla and UBTECH. This high-quality client base provides stability to its financial performance.

02 Cyclical Characteristics and Growth Drivers

Warren Buffett once noted that low gross margins often indicate weak pricing power, limiting a business’s tolerance for market volatility. This insight is key to understanding Jinli’s operational dynamics.

As the global market leader, Jinli displays pronounced cyclicality: despite scale advantages, its net asset returns (ROE) have historically remained moderate, reflecting a tension between market dominance and profitability quality.

Financial data over the past five years illustrate this: even during favorable industry conditions in 2020–2021, gross margin hovered around 22%, net margin near 10%, and ROE at 18%. Subsequent years saw declining profits, with 2024 marking a low point: gross margin dropped to 11.13%, net margin to 4.35%, and ROE to 4.15%, illustrating the disparity between leadership and profitability.

Cost structure is central to this dynamic. Raw materials account for over 70% of production costs, with rare earth materials (primarily praseodymium-neodymium oxides and metals) consistently representing 62%–78%. Manufacturing overhead accounts for only 6%–8%. Even with grain boundary infiltration technology reducing heavy rare earth usage, the business model remains fundamentally “rare earth cost + processing fee,” i.e., largely processing-driven.

Profitability is highly correlated with rare earth prices. During price upcycles, low-cost inventory releases boost margins; in price downcycles, inventory impairment and product price adjustments compress margins. Inventory turnover ranges between 97.6–152.6 days, with accounts receivable turnover at 86–112 days, reflecting operational discipline but exposing earnings to market cycles.

To mitigate cyclical volatility, R&D has become Jinli’s key competitive moat. Since 2022, annual R&D expenditure has consistently exceeded CNY 300 million, even during the 2024 profit trough. Continuous technological iteration has expanded product applications from home appliances and NEVs to robotics and low-altitude economy sectors, solidifying technical leadership.

03 Valuation Logic and Key Variables

Over the past five years, Jinli’s P/E ratio has fluctuated widely between 30x and 115x. As of January 21, 2026, the P/E stands at around 82x, at a historically high level, aligning with a ~114% stock price increase over the past 250 trading days.

Whether this high valuation is justified depends on earnings growth. Production capacity, planned to increase from 40,000 tons to 60,000 tons by 2027 (+50%), provides a clear path for potential profit expansion. If rare earth prices remain stable, profitability could grow proportionally, reducing P/E to roughly 50x by 2026.

Price remains the core variable in valuation. The rare earth price index is currently at 237.5 points, still relatively low compared to its five-year high of 431 (March 2022) and low of 153.3 (March 2024). While policy support and anti-competition trends provide some stability, short-term earnings will remain highly price-driven rather than volume-driven.

In the long term, rising humanoid robot production, NEV penetration, and strategic control over rare earth resources in China could shift the industry’s price floor upward. However, broad 50% production expansion plans among competitors may intensify competition and limit upside.

In essence, Jinli, despite being a “hidden champion,” is still highly cyclical due to reliance on rare earth pricing. Investment timing within the cycle is crucial.

As Peter Lynch famously said: “Invest in cyclical stocks by sowing in the rain and harvesting in the sun.” For cyclical sectors like rare earths, the position in the cycle often matters more than the story itself.