Key points of investment

Next Monday (June 19), “Henggong Precision”, a company listed on the GEM, will ask for a quote.

Henggong Precision (301261): The company mainly focuses on R&D, production and sales of precision machined parts and continuous cast iron parts. The company achieved revenue of 528 million yuan/878 million yuan/864 million yuan/864 million yuan respectively in 2020 and 2022, YOY was 27.02%/66.34%/-1.67% in that order, and the three-year revenue compound annual growth rate was 27.60%; achieving net profit of 61 million yuan/102 million yuan/105 million yuan, YOY was 50.85%/68.34%/3.44% in that order, and the three-year compound annual growth rate of Fumo's net profit was 37.98%. In the latest reporting period, 2023Q1 achieved operating income of 221 million yuan, a year-on-year decrease of 1.38%; it achieved net profit of 30 million yuan to its mother, an increase of 35.61% over the previous year. According to preliminary forecasts, in January-June 2023, the company expects to achieve net profit of 55 million yuan to 63 million yuan attributable to owners of the parent company, a change of 2.68%-18.08% over the same period last year.

Investment highlights: 1. Relying on process technologies such as continuous casting and ductile iron, the company's products have entered a well-known downstream customer system. The continuous casting process and ductile iron process mastered by the company greatly improved the compactness, processing accuracy, strength and plasticity of castings compared to traditional sand casting processes, and solved the pain points of product defect rate. As a result, they passed strict certification barriers for customers of large hydraulic, pneumatic and transmission machinery manufacturers, and established long-term stable cooperative relationships with hydraulic customers such as Sany Heavy Industries, Haitian Group, and XCMG Machinery, as well as pneumatic customers such as East Asia Machinery, Atlas Copco, and Hanzhong Precision Machinery. 2. The company extends the industrial chain from the upstream continuous cast iron chain to the back-end machining process, and has one-stop service capabilities.

In 2015, the company extended and upgraded the industrial chain, extending from a single continuous cast iron part chain upstream to the precision machined parts chain at the rear end, opening up the barrier between the material end and the end customer, and having the one-stop service capability of “continuous cast iron+machining”, which formed significant cost side advantages in the machining process, shortened the delivery cycle, and improved the rapid responsiveness to customer needs and improved production and operation efficiency. Comparatively speaking, the company's per capita output in 2022 (1,466,500 yuan/person) was about double the per capita output of industry-comparable companies (710,300 yuan/person).

Comparison of listed companies in the same industry: Liande, Dern Precision, Liancheng Precision, and Huaxiang Co., Ltd. were selected as comparable listed companies for Henggong Precision; looking at the comparable companies mentioned above, the average revenue scale in 2022 was 1,568 billion yuan, and the comparable PE-TTM (arithmetic average) excluding extreme values was 20.96X, and gross sales margin was 26.49%; in comparison, the company's revenue scale and gross margin average were lower than the industry average.

Risk warning: There is still a possibility that companies that have begun the inquiry process will not be able to go public due to special reasons; company content is mainly based on the content of prospectus and other public information; there is a risk that the selection of listed companies in the same industry is not accurate enough; there may be interpretation deviations in the selection of content data. The specific risks of listed companies are shown in the text.