Event: on August 1, 2023, the company announced that revenue in the first half of 2023 was 613 million, year-on-year + 23.2%, and home net profit was 137 million, + 34.8% year-on-year. Single Q2, revenue 333 million, year-on-year + 22.9%, home net profit 80 million, year-on-year + 25.0%.
The release of the company's production capacity is progressing smoothly, promoting a steady increase in revenue. In 2022, the company's "34800 sets of new finishing technical renovation project" successfully landed, realizing the expansion of effective machining capacity, and the technical renovation project of Liyuan Jinhe, a holding subsidiary, was also successfully put into production, through the establishment of a brand-new resin sand casting production line, coordinate with Liande's existing business to supplement casting capacity.
By the end of June 2023, the company has 10 CNC processing workshops, 129 large-scale machining centers, and has an annual casting capacity of 70,000 tons. Jinhe technical renovation project has basically completed the production capacity climbing, and has a significant advantage in the scale of operation. on the basis of stable cooperation with existing customers, the revenue scale is expanded by alleviating capacity bottlenecks.
We will promote subsidiaries to improve efficiency and reduce losses, and their profitability will rise steadily. The company Q2 in 2023, gross profit 38.24%, year-on-year + 1.5pct, month-on-month + 0.85 pct; net profit 23.92%, year-on-year + 0.44pct, month-on-month + 3.91pct. The company's profitability has steadily improved, we believe that: ① holding subsidiary Liyuan Jinhe capacity release, the company's overall resource allocation and utilization efficiency; ② subsidiary Liyuan hydraulic loss reduction work, the company's investment losses in associated enterprises have decreased compared with the same period last year and month-on-month; ③ cost control is relatively stable, with an expense rate of 9.58%, year-on-year + 1.38pct, month-on-month-4.72pct.
Invest in new Mexican factories and enhance in-depth cooperation among global customers: the company previously announced that it planned to set up a Mexican subsidiary with self-raised funds, with a total investment of US $56.56 million in the first phase and a construction period of two years. It is planned to form an annual production capacity of 38000 precision components after reaching production, including 20,000 compressor parts, 10,000 construction machinery parts and 8000 agricultural machinery parts, with an estimated income increase of 29.74 million US dollars per year, or about 210 million yuan. It accounts for about 19% of the company's total revenue in 2022. The Mexican base will help the company to further expand cooperation channels in overseas markets, expand more overseas leading new customers, meet the low-cost supply chain needs of existing customers, and provide support for the company's sustainable development.
Investment suggestion: we estimate that the company's operating income from 2023 to 2025 will be RMB 13.86 million, with a year-on-year growth rate of 23.7%, 48.6% and 39.0%, respectively, and its net profit will be RMB 3.010 million, respectively. The year-on-year growth rate will be 21.2%, 47.4% and 30.9%, respectively, and the corresponding PE will be 22-15-11. From 2024 to 2025, the company is expected to enter the stage of concentrated release of production capacity, with high profits and high growth. The compound growth rate of net profit in 3 years is expected to exceed 40%. A certain valuation premium is given. The valuation is expected to see 26x in 2023, corresponding to the 6-month target price of 32.24 yuan, maintaining the "buy-A" rating.
Risk tips: large fluctuations in raw material prices; lower-than-expected demand due to lower-than-expected economic recovery; lower-than-expected capacity expansion; loss of important customers; and lower-than-expected business development of acquisition and equity companies.