Lynas Rare Earths Ltd (ASX: LYC)
Lynas Rare Earths Limited is a Malaysia-based company, which is engaged in the extraction and processing of rare earth minerals, primarily in Australia and Malaysia, and development of rare earth deposits.
Recommendation Rationale – SELL at AUD 6.90
- Profit Booking: LYC’s share price has increased over 15% in the past month; and thus, it offered a profit booking opportunity.
- Technical Standpoint: The momentum oscillator, 14-day RSI (~69.38) is approaching the overbought zone; and this, price can face consolidation in the short term.
- Net Profit Decline: In H1 FY24, Net Profit declined by 74% YoY. Moreover, LYC reported a gross margin of 32.3% in H1 FY24 against 43.1% of industry median.
- Overvalued Multiples: On a forward 12-month basis, key valuation multiples (EV/EBITDA, Price/Earning, Price/Book, Price/Cash Flow) are higher than the average for the Basic Materials sector.
- Key Risk: Lynas Malaysia was temporarily shut down until end of December from mid-November, and its impact led to the financial decline in H1 FY24. Although the plant has resumed from 1 January 2024, any such future event can continue to impact the Company's financial position.
LYC Daily Chart
(Source: REFINITIV; Analysis by Kalkine Group)
Valuation Methodology: Price/Earnings Approach (FY Jun'25E) (Illustrative)
Considering the recent rally shared price, key risk, overvalued multiples, net profit decline, and risks associated, it is prudent to book at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 6.90, at 2:10 PM, as of 10 May 2024.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.
Note 1: Past performance is neither an indicator nor a guarantee of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 10 May 2024. The reference data in this report has been partly sourced from REFINITIV.
Note 3: Investment decisions should depend on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.