First coverage

Investment highlight

For the first time, Kexin Mechatronics (300092) rated the outperforming industry with a target price of 16.26 yuan, based on the PE valuation method, corresponding to 2024 20X. The company is a high-quality supplier of domestic large-scale pressure vessels, covering new energy, natural gas chemical, petroleum refining, coal chemical and other fields for the following reasons:

The company is a leading large-scale pressure vessel enterprise in China. Kexin Mechanical and Electrical Co., Ltd. was established in 1997, listed on the gem in 2011, and will raise 580 million yuan in March 2023. From 2019 to 2022, the compound growth rate of revenue and return net profit was 22% and 40% respectively. 2023H1's revenue rose 49% year-on-year to 770 million yuan, its net profit increased 56% to 91 million yuan, and orders on hand totaled 2.1 billion yuan. Oil refining and natural gas chemicals are progressing smoothly.

There are many kinds of non-standard pressure vessels, and the degree of concentration needs to be improved. 1) according to Frost&Sullivan, the growth rate of China's pressure vessel market is 8%, 10%, about 250 billion yuan in 2022, and 280000 new pressure vessels are registered. Looking forward to the next three years, we expect that chemical demand is expected to be robust, and demand in the LNG and hydrogen sectors is expected to boost. 2) the pressure vessel belongs to special equipment, which needs to be cut off, and the difficulty is reflected in: metallurgy, welding, forging, heat treatment process, customized design capacity, and capital-intensive investment. According to our statistics, the positioning of the existing domestic enterprises is different, and the degree of concentration needs to be improved.

Qualification & technology to build barriers and steadily move towards the high-end market. 1) the company has many qualifications, such as the manufacturing license of grade 2 and 3 mechanical equipment in the field of civil nuclear safety, and the manufacturing license of first-class radioactive goods transport containers. The renewal review of American ASMEU and U2 authorization certificates was successfully completed in the first half of 2023.

2) the company pays attention to the accumulation of riveting skills, with a reserve of nearly 500 welders, and will promote the digital transformation of welding from 2022.

What is the biggest difference between us and the market? 1) We comprehensively sort out the entry barriers of pressure vessel enterprises and split Kexin's mechanical and electrical core competitiveness. 2) We introduce the development prospect of natural gas chemical industry and other downstream in detail.

Potential catalysts: the production of fixed increment is smooth, the progress of hydrogen energy business reserve, etc.

Profit forecast and valuation

We estimate that the company's EPS in 2023-24 will be 0.61 yuan, 0.82 yuan respectively, and the CAGR will be 37%.

We give the company a target price of 16.26 yuan, corresponding to the 2023 21x/16x in 2024, and the current price to 21x/16x in 2023, with an increase of 25%, which is better than the industry rating.

Risk

Raw material price fluctuation risk, high-end equipment fundraising project progress is not as expected, nuclear power bidding progress is not as expected, and so on.