A leading enterprise in the domestic CNC roller grinder segment, its performance has improved significantly in 23 years. The company took the lead in replacing domestic production in many segments of CNC roller grinders. It is a national-level specialized, innovative “little giant” and a national champion enterprise in the manufacturing industry. Customers cover well-known domestic enterprises such as Baowu Group, Shougang Group, and Angang Steel Group, and the products are also exported to Thailand, India, Uzbekistan and other countries. In the first three quarters of '23, the company's revenue/net profit to mother was 349/96 million yuan respectively, up 44.79%/337.17% year-on-year. In '22, 23H1's inventory was 410 million yuan, of which the products issued were 230 million yuan and 210 million yuan respectively. With subsequent customer acceptance and gradual revenue confirmation, the company's performance is expected to continue to grow.

CNC roller grinder: the core branch of industrial mother machine, when localization is in progress. CNC roller grinders influence downstream product quality and industrial development by affecting roller processing accuracy. Industrial upgrades in downstream steel and other industries in recent years have boosted demand for high-end grinders. Currently, the CNC system and core components of domestic CNC roller grinders still rely on imports.

In terms of the competitive landscape, the first tier of the industry is foreign companies such as German HERKULES, Italian POMINI, and American CAPCO. Domestic roller grinding machine companies are penetrating from the middle to high-end fields.

Screw guide rail: When localization is underway, the value of precision grinders is prominent. High-precision screw guides have broad application prospects in aviation, manufacturing, robotics and other industries, such as: in the automotive field, ball screws are widely used in NEV steering systems, braking systems, parking systems, and suspension systems; in the robotics field, Musk estimated the production of Optimus robots on 2022 Tesla AI Day to reach millions of units, and planetary roller screws are the core components of linear actuators. Currently, high-precision grinding machines for screw and linear guide rail production are still mainly supplied by overseas brands, and domestic manufacturers such as Huachen Equipment and Rifa Precision Machinery are being localized.

Company: Based on precision grinding technology, launched a new product of internal and external circular composite grinding machines; cooperated with Best to enter the field of screw guide rail grinding. The company is expanding its product matrix based on its heritage in precision grinding technology. Since 2017, the company and Wieland in Germany have jointly developed a CNC internal and external cylindrical composite grinder, equipped with the Huachen HCK2000 CNC system independently developed by the company. The accuracy indicators of this product are comparable to the leading level of similar products abroad. It has been officially launched on the market in 23 years, and is expected to gradually expand in 24 years. Furthermore, in October '23, the company's strategic cooperation with Best plans to provide it with precision CNC linear guide rail grinder products that match the leading level of international industry leaders within 1 year. This product is currently the product with the longest grinding length, technical difficulty and highest grinding efficiency in the world.

In terms of production capacity, the production capacity of fully automatic CNC roller grinders is expected to expand to 100 units/year, and new production capacity of 60 high-precision CNC universal cylindrical grinders and 20 CNC continuous trajectory coordinate grinders is expected to be built in June '24. In addition, the company is also expanding products in fields such as semiconductor dicing knives based on ultra-hard abrasive wheel technology.

Profit forecast, valuation and rating: The net profit due to mother for 23-25 is predicted to be $123/1.51/195 million, and the corresponding EPS is $0.49/0.60/0.77. Huachen Equipment is a leader in the field of high-end CNC roller grinding machines, and the CNC system has achieved independent research and development; based on precision grinding technology, it has launched a CNC internal and external composite grinder, cutting into new fields such as precision CNC linear guide rail grinding, positioning a domestic replacement for high-end grinding equipment, and for the first time, giving it an “increased rating”.

Risk warning: Market competition increases risk, accounts receivable recovery risk, and fund-raising projects fall short of expectations.