Incidents:
On August 24, 2023, the company released its 2023 semi-annual report. In the first half of 2023, the company achieved revenue of 147 million yuan, an increase of 10.73% over the previous year; achieved net profit of 118 million yuan, a year-on-year decrease of 14.17%. Performance was slightly under pressure; net profit of non-return net profit of 115 million yuan was deducted, a year-on-year decrease of 8.68%.
Increased production capacity boosted revenue growth. Some fund-raising projects were put into use during the year, and in the first half of the year, the company's revenue increased 10.73% year-on-year. This was mainly due to the completion of part of the company's fund-raising projects. At the same time, process technology and equipment were upgraded, and overall production capacity was effectively increased. At the same time, after the acquisition of Zheng Fei Machinery, the corresponding market share was expanded, and sales revenue increased. The company's fund-raising project “Aviation Core Component Intelligent Manufacturing Industrialization Project” had invested 36% by the end of the reporting period. It is expected to be put into use in March '24, and the “National Defense Equipment R&D Center Project” is expected to be put into use by December '23. Both projects are progressing gradually, and the progress is in line with expectations.
Increase R&D expenditure and improve core technology
The company insists on independent innovation in core technology. During the reporting period, it increased R&D investment in semiconductor projects, including “R&D of high-speed eutectic mounters” and “R&D of industrial mounters”. At the same time, it also increased R&D investment in Zheng Fei Machinery. R&D expenses in the first half of '23 were 114 million yuan, an increase of 56.74% over the previous year, accounting for 9.82% of revenue, an increase of 2.88pct over the previous year. At the end of the reporting period, the company had 12 core technologies in the aerospace field. Of these, 11 were independently developed and obtained by the company, and 1 was imported and absorbed by the company from Nanjing University of Aeronautics and Astronautics. The company has been granted 35 invention patents and 130 utility model patents.
Profit Forecasts, Valuations, and Ratings
Considering that the company is in a leading position in the field of CNC precision processing, we expect the company's operating income in 2023-25 to be 384/445/503 million yuan, corresponding growth rate of 18.50%/15.96%/12.91%, net profit of 0.2/0.81/91 million yuan, corresponding growth rate of 70.17%/11.77%/12.73%, three-year CAGR of 28.95%, and EPS of 0.65/0.72/0.81 yuan/share, corresponding to PE 29/26/23 times, respectively. In view of the company's layout of CNC precision machining business for military and civilian parts, according to the relative valuation method, with reference to comparable company valuations, we gave the company 28 times PE in 2024, and the company's corresponding target price was 20.16 yuan. Maintain the “increase in holdings” rating.
Risk warning: Product quality control risks; risk that fund-raising projects fall short of expectations; market competition increases risk.