Investment logic:
“Lightweight conveyor belt+precision molding” two-wheel drive, actively promoting global layout. The company started as a lightweight conveyor belt business and expanded its precision molding business through acquisitions. In the field of light conveyor belts, the company's business scale and technology accumulation are leading in China and close to leading overseas companies. In the field of precision molding, the company specializes in mold manufacturing and plastic parts injection molding, focusing on providing customers with high-quality “one-stop” products and services. In the first half of 2023, the company's lightweight conveyor belt business achieved revenue of 449 million yuan, accounting for 52.54% of total revenue; the precision molding business achieved revenue of 405 million yuan, accounting for 47.46% of total revenue.
In the first three quarters of this year, the company achieved operating income of 1,454 billion yuan, a year-on-year decrease of 9.61%, and net profit of 179 million yuan, a year-on-year decrease of 12.47%.
The gradual recovery of the logistics and civil aviation industries is expected to drive an increase in demand for lightweight conveyors. In terms of logistics, according to data from the China Federation of Logistics and Purchasing, from January to October this year, the total amount of social logistics nationwide was 278.3 trillion yuan, an increase of 4.9% over the previous year at comparable prices. With macroeconomic recovery, demand in the domestic logistics industry is gradually picking up. Demand for civil aviation continued to improve. The passenger traffic volume of civil aviation in the first three quarters was 1.29/1.55/180 million people, respectively, up 108%/269%/68% year on year, a change of -20.0%/-3.9%/+2.6% compared to 2019.
On the one hand, the recovery in demand in the logistics and civil aviation industry will increase the demand for replacement of light conveyor belts. On the other hand, driven by policies and industry demand growth, increased investment in logistics equipment and the construction of new civil aviation airports are expected to drive additional demand for lightweight conveyors.
Focusing on providing “one-stop” products and services, the company's precision molding business is expected to benefit from the development of the downstream smart home industry. The company's precision molding business covers the entire process from precision mold development to precision plastic parts injection processing. Downstream involves consumer electronics, smart homes, precision toys and other industries. Among them, the smart home industry is growing at a high rate and has relevant policy support, so the company's related products are expected to benefit. According to CSHIA data, in 2017-2022, China's smart home market increased from 325.47 billion yuan to 651.56 billion yuan, with an average compound annual growth rate of about 14.89%. The overall rapid growth trend has been maintained, and the market size is expected to exceed 700 billion yuan in 2023.
Profit forecasts, valuations, and ratings
We forecast that in 2023/2024/2025, the company will achieve operating income of 1,911 million/2,049 billion/2.195 billion yuan, -9.03%/+7.19%/+7.14% over the same period, net profit of 202 million million/219 million/246 million yuan, and -17.27%/+12.31% year-on-year, corresponding EPS of 0.25/0.27/0.30 yuan. Considering the company's leading position in the light conveyor belt industry and the two-wheel drive business model, the company was given 18 times PE in 2024, with a target price of 4.82 yuan/share, covering the first time, and giving it an “increase in holdings” rating.
Risk warning
Risk of RMB exchange rate fluctuations; downstream demand falling short of expectations; risk of impairment of goodwill; raw material price fluctuations; capacity release for new projects falls short of expectations.