Description of the event
The company announced the 2023 three-quarter report. In the first three quarters of 2023, the company achieved total operating income of 510 million yuan, +15.23% year-on-year; net profit of 157 million yuan, +10.75% year-on-year. Based on this calculation, the 23Q3 company achieved total operating income of 112 million yuan, or -33.31% of the same period last year, and net profit of 0.18 million yuan, -66.66% of the same period last year.
Incident comments
Short-term performance is under pressure. In 23Q3, the company's revenue was -33.31% year-on-year, mainly due to a slowdown in the growth rate of demand for new energy vehicles, and a decrease in downstream demand for the company's products and replacement frequency. In terms of profitability, in the first three quarters of 2023, the company's gross profit margin was 53.80%, y-11.0pct; net profit margin was 31.13%, y-0.8 pct; of which, 23Q3 gross profit margin was 40.06%, -25.3pct, month-on-month -9.5pct; net profit margin was 16.04%, -16.3pct, and -8.7pct month-on-month. The decline in the company's net interest rate is mainly due to price pressure from major downstream customers and increased competition in the industry, and a sharp decline in gross margin.
The company's performance is mainly contributed by Zhihong Precision. Zhihong Precision focuses on the field of lithium battery electrode molding and production, and has established stable cooperative relationships with many leading or well-known enterprises in the lithium battery production or equipment industry in various fields such as downstream consumer batteries, power batteries, and energy storage batteries. As the scale increases, the business is developing steadily. In the road passenger transport business sector, the company has segmented and integrated resources in business sectors such as passenger transportation, high-speed rail, and asset development to consolidate revenue channels; push forward bus reform, accelerate the recovery of accounts receivable, continuously optimize job allocation, and make every effort to reduce rigid costs and expenses, reduce costs and increase efficiency.
Cutting molds surpass industry growth. Lithium battery cutting dies are blades and tool holders used to cut poles in laminating machines or all-in-one cutters. They are the core components of the equipment, have consumable properties, and increase with laminated battery production. The company has an excellent core team, leading technical technology, and an experienced after-sales service team, which can respond at high speed, making the company highly competitive and has strong customer stickiness. Currently, the company's share in the industry is relatively good.
The downstream space of the mold is vast, and new applications are continuously expanded. Zhifeng Technology, a subsidiary of Zhihong Precision, has successfully developed a variety of high-precision extrusion coating dies. The technical indicators and quality are superior to the same domestic products, and it has successfully served the lithium battery industry, OCR glass plate coating, etc. Among them, slit extrusion dies have been supplied in batches, and the company is expected to continue to break through new customers. In addition, the company's new die production business has successfully provided mold customization services at the same level as imported brands for some leading lithium battery companies, and the die repair business has successfully provided hundreds of die grinding services for lithium battery companies. The mold industry has a wide range of downstream fields. The company is actively expanding new products and businesses such as coating heads and coating equipment, which is expected to contribute to increased revenue and performance.
Maintain a “buy” rating. We expect the company's net profit from 2023-24 to be 220 million yuan and 330 million yuan respectively, corresponding to the latest PE of 22 and 15 times, respectively, maintaining the “buy” rating.
Risk warning
1. Market competition risk of potential new entrants;
2. Risks of product upgrades and replacement of emerging technology routes.