Q3 of 2023 continues to be profitable and continues to benefit from domestic replacement of high-end CNC systems

In Q1-Q3 of 2023, the company achieved revenue of 1,296 million yuan, +33.3% year-on-year; net profit was -34 million yuan, +37.6% year-on-year. Among them, net profit for Q3 was 100 million yuan, +129% over the same period last year. The company's revenue growth was mainly due to an increase in revenue scale in the CNC system and machine tool sector, and the robot and intelligent production line sector. Q3 continued to be profitable, and cash flow recovered in the first three quarters. We maintain our profit forecast. The net profit for 2023-2025 is estimated at 0.7/1.4/2.0 billion yuan. The current stock price corresponding to PE is 111.3/56.2/40.5 times. The company uses CNC system technology as the core to drive the growth of the three main industries and continues to promote the penetration of domestic alternatives in the high-end CNC system market. The market share is expected to increase steadily and maintain the “buy” rating.

Gross margin is stabilizing, and cash flow is recovering

In 2023, Q1-Q3, the company's gross sales margin was 32.6%, +0.77pct year on year, and net profit margin -3.4%, +4.77pct year on year.

Among them, the company's Q3 gross profit margin was 37.5%, up 1.05pct year on year; net profit margin -0.9%, +1.92pct year on year.

The company's cash flow improved in the first three quarters of 2023. The operating cash flow balance at the end of the Q1/Q2/Q3 quarter was 0.02/0.60/051 million yuan, respectively, showing a marginal improvement compared to the positive recovery in 2022. The company continued to increase R&D investment. In the first three quarters of 2023, R&D expenses amounted to 250 million yuan, an increase of 24.6% over the previous year.

Signed a strategic cooperation agreement with the National Intelligence Center to expand the layout of high-end technology and platform construction

The company signed a strategic cooperation agreement with the National Intelligent Design and CNC Technology Innovation Center to jointly develop technology development and cooperation on high-performance CNC technology and high-end CNC systems, industrial Internet platforms, intelligent servo and dynamic modeling, intelligent motor technology, robots, and intelligent production lines. During the cooperation period, the company plans to pay a total of 30 million yuan for technology research and development expenses to the National Intelligence Center, which will be disbursed in three-year installments according to project acceptance. The National Intelligence Center is a science and technology innovation entity commissioned by the Ministry of Science and Technology and established by the Hubei Provincial People's Government. It is expected to further enhance the company's scientific research capabilities and increase the construction of platforms such as numerical control systems, industrial Internet, and intelligent production lines.

Risk warning: The company's high-end CNC system R&D iterative progress falls short of expectations, downstream domestic replacement progress falls short of expectations, and macroeconomic recovery falls short of expectations.