Key points of investment
Event: The company released its 2023 performance forecast. It is expected to achieve revenue of 59-620 million yuan in 2023, an increase of 42.40%-49.64% over the previous year, and a net profit of 90 million yuan to 108 million yuan, an increase of 43.26% to 71.92% over the previous year.
The performance was basically in line with expectations, and all business segments maintained steady growth. The company has benefited from the recovery in downstream industries such as consumer electronics and automobiles. The overall development of the tool business is good, the number of customer orders continues to grow, and the market share and market penetration rate have steadily increased. At the same time, it has accelerated expansion and achieved breakthroughs in downstream application fields such as aerospace, precision molds, engineering and general machinery, which has promoted the steady growth of the company's business performance.
Benefiting fully from titanium alloying in consumer electronics, new products continue to be introduced to the market. New products such as titanium alloy structural processing tools for 3C electronic products, fairway PCBN cutters for constant velocity universal joint processing, and PCBN rotary milling blades for ball screw processing have been introduced to the market one after another, achieving market breakthroughs and revenue growth. Mobile phone manufacturers such as Apple, Xiaomi, and Samsung have now begun to use titanium alloy materials. According to Avon Polymer data, the overall yield of titanium alloy phone frames is about 30%-40%, far lower than 80% of aluminum alloy middle frames; moreover, the processing time is about 3-4 times that of aluminum alloy. Superhard tools, on the other hand, are ideal tools for processing titanium alloys.
Customer development continues to make efforts, and they are optimistic that exports will maintain a high growth rate. On the export side, the company's European subsidiary began operations in 2022, and 13 agents have been contracted in Europe. The company continues to strengthen sales and marketing efforts, and the coverage of the customer base has been further expanded. In terms of overall packaging, the company was able to develop and design more than 55,000 customized tools for customers, and also participated in general tool contracting to achieve the rapid introduction of the company's tool products.
Investment advice: As a domestic leader in superhard tools, the 3C sector accounts for a large share. Currently, consumer electronics is at the bottom of the cycle. As major mobile phone manufacturers launch popular products, signs of recovery are already quite obvious. Furthermore, titanium alloying of consumer electronics materials may become a future trend, which will significantly increase tool usage. The subsidiary, Xinjinquan, has been deeply involved in 3C tools for many years, and is expected to have great profit elasticity in 2024. Overseas, the company's superhard tools quickly ushered in a high growth rate after entering the European market, and it is expected that they will become an important growth engine in the future. We adjusted the original 2023-2025 forecast of the company's net profit value of 1.11/1.46/174 million yuan to 0.99/1.43/168 million yuan, corresponding to the January 29 stock price. EPS was 0.65, 0.94, and 1.09 yuan, respectively, and the corresponding PE valuations were 28.2, 19.5, and 16.7, respectively. Maintain a “buy-B” rating.
Risk warning: Capacity expansion falls short of expectations; competition intensifies; downstream prosperity declines.