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Lynas (ASX:LYC) share price bucks the trend on strong HY21 results

The Lynas Rare Earths Ltd (ASX: LYC) share price is a rare bright spot today amongst a sea of red, with the broader S&P/ASX 200 (ASX: XJO) down 2.3% at the time of writing.

The group’s half-yearly results confirm its strong growth trend, with lifted revenue, disciplined cost controls and a strong balance sheet to support future developments.

Financial highlights

Sales revenue across the period lifted by 12% to $202.5 million, with record sales achieved in the December quarter. Cost of sales were notably lower compared to the prior corresponding period (pcp) at $150.8 million, resulting in an 82% jump in EBITDA to $80.6 million.

The standout result of the period was its net profit after tax (NPAT) of $40.6 million, a big increase of 944% from just $3.9 million in the pcp. The profit increase was driven by an improvement in gross margin from 16% to 25%, and favourable currency movements.

Lynas’s cash balance finished strong at $512.6 million, which was strengthened by a recent capital raising that raised roughly $425 million.

Lynas had $964.4 million of net assets as of 31 Dec 2020, and it’s also indicated it will repay subsidies received from the Australian and Malaysian governments during the half.

Secular tailwinds

Management believes the continued confidence in market growth is being propelled by the rise in global megatrends and the shift to cleaner sources of energy.

According to Lynas, demand for electric vehicles (EVs) has been a key driver, with an estimated 40% growth rate of EV sales between 2019 and 2020.

Wind energy capacity has also picked up despite the challenges of COVID-19, with capacity growth of 8% in 2020.

Consumer electronics is anticipated to continue to trend upwards, with the market expected to grow to $17.7 billion by 2030 at a compound annual growth rate (CAGR) of 4.9%.

The global smart home market is expected to surpass US$289 billion by 2030 at a CAGR of 26%, offering an additional lucrative market.

Management commentary

Commenting on the results, Lynas CEO and Managing Director, Amanda Lacaze, said: “Despite ongoing uncertainty in the global economy and logistics/supply chain systems due to the effects of the pandemic, Rare Earths market settings were favourable and pricing for Rare Earths materials improved.”

Looking ahead, Lacaze said: “Lynas has a unique position in an exciting market. We are the 2nd largest producer of separated Rare Earths in the world and have a proven track record in developing and operating our production assets. Our team remains absolutely focused on serving our long-term strategic customers with high quality products and on contributing to the development of a sustainable Rare Earths supply chain outside China.”

2025 growth vision update

Proceeds from Lynas’ recent $425 million capital raising will be partly allocated to the planned Kalgoorlie Rare Earth Processing Facility and other various associated upgrades at the Lynas Malaysia plant.

The Kalgoorlie project referral has been submitted to the Western Australian Environmental Protection Authority with a detailed engineering design complete. Kiln fabrication is currently underway and on schedule.

In the US, the project scope has been confirmed with Lite Rare Earth (LRE), Heavy Rare Earth (HRE) and speciality products capability.

According to management, Lynas is uniquely positioned to respond to recent global megatrends through its proven track record of successful execution, combined with its world-leading ore body with further exploration planned.

Today’s rise adds to what has been an impressive 12 months for Lynas, with the share price soaring more than 200% over the past year.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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