Core views
The continuous iron casting process has high barriers, testing supplier parameter control. The company is a domestic leader, has mastered the five major core components, developed its own production line, and accounts for about 60% of the domestic market. Continuous cast iron materials have advantages in performance and cost, and are expected to replace sand castings and forged steel parts, and there is plenty of room for improvement in the future. Since 2015, the company has extended machined parts vertically in the industrial chain, forming a “continuous cast iron+machining” two-wheel drive. It has been applied in batches in the field of air compressors and hydraulic equipment. Its peers do not yet have the ability to supply high-precision machined parts in batches, and the company has a clear first-mover advantage. The company raised funds to expand machining production capacity and continue to expand into new fields. It has supplied core components for RV reducers in small batches and achieved batch supply of vacuum pump rotors.
The company focuses on precision machined parts and continuous cast iron parts. It is one of the few high-tech enterprises that have mastered the core technology of continuous cast iron and can provide one-stop service for the manufacture of core equipment components. Its main products include air compressor core components such as air compressor rotors, and hydraulic equipment core components such as hydraulic valves. In 2018-2022, the company's revenue increased from 449 million yuan to 864 million yuan, the CAGR was 17.75%, and net profit to mother increased from 76 million yuan to 105 million yuan, and the CAGR was 8.70%.
The continuous iron casting process has high barriers and is expected to replace sand castings and forged steel parts. The company is a leading domestic company. Continuous cast iron requires high process parameter control and requires many years of experience from manufacturers. The company has mastered the five core elements of the continuous cast iron process: raw material ratio, trace element addition, supercooling control, graphite sleeve structure design, and drawing speed and rhythm control. The production line is self-developed, and has developed a multi-flow continuous cast iron production line to greatly improve production efficiency. Compared with sand casting, the continuous iron casting process has the advantages of energy efficiency, environmental protection, high material performance, and high efficiency in non-special-shaped parts; compared with forged steel parts, continuous iron castings can guarantee material performance while being lower in cost. In 2021, China's continuous cast iron production was 225,000 tons, accounting for only 1.41% of China's ductile iron production, and there is plenty of room for future growth. In 2021, the company produced 133,700 tons of continuous iron castings, with a market share of 59.42%.
Continuous cast iron+machined two-wheel drive, pneumatic parts+hydraulic parts developed. Since 2015, the company has extended machined parts vertically in the industrial chain to build a one-stop service capability of “continuous casting+machining”. Currently, domestic and foreign competitors do not yet have the ability to supply high-precision machined parts to end customers in batches, and the company has a clear first-mover advantage. The screw rotor is the core component of air compressors. The company can provide finished screw rotor products and continue to expand back-end processing capabilities to increase the added value of the product. China's hydraulic industry has a large space, and the company can expand into many categories. Currently, products include plunger pump cylinders, hydraulic valve blocks, hydraulic motor stators, cylinder heads, pistons, guide sleeves, etc., and customers have broken through Haitian Group, Sany Heavy Industries, and XCMG Machinery.
Breakthroughs have been achieved in the field of RV speed reducers and vacuum pumps. The company is developing core components of robot reducers. Currently, it has achieved technological breakthroughs in the core components of RV reducers: planetary mounts, planetary covers, cycloidal wheels, pintooth shells, eccentric shafts, etc., and has begun small-batch supply. The company has achieved batch supply of vacuum pump rotors and reached initial cooperation with Edwards, BUSCH, Bose Co., Ltd., and vacuum pump rotors are expected to contribute significantly in the future. The company raised funds to expand machining production capacity and continue to expand into new fields.
Profit forecast: The company's net profit for 2023-2025 is expected to be $121, 151, and 193 million yuan, respectively, covered for the first time, and given an “increase in wealth” rating.
Risk warning: The progress of production capacity expansion falls short of expectations, and there is a risk of cyclical fluctuations in the downstream industry.