Key points of investment:
A leading manufacturer of precision parts, with excellent financial indicators. The company's products are used in compressors, construction machinery, food machinery and wind power equipment, etc., and has accumulated a large number of high-quality global top 500 customer resources, including Johnson Controls, Ingersoll Rand, Caterpillar, etc. The company's performance grew steadily, and gross margin remained high among peers. In 2022, thanks to a stable domestic market and a sharp increase in demand in overseas markets, production capacity expansion achieved through superimposed technical reforms, and achieved revenue of 1.12 billion yuan, an increase of 40.3% over the previous year. The company's gross margin level was high. The company's gross margin level was high. It declined sharply in 21 due to an increase in raw material prices, and rebounded in '22.
The production capacity of the global casting market is stable, and China's share of production continues to increase. The foundry industry is an important basic industry for manufacturing, and its development status is closely related to the global economy. Global casting output is 11 million tons in 2022. Judging from the industry development cycle, the global foundry industry has entered a mature stage of steady development, and casting production is stable; China's casting production increased from 41.5 million tons to 54.05 million tons in 2011-2021, with a CAGR of 2.7%, and the share of global market output is still increasing. Supply side: Under supply-side structural adjustments, backward production capacity is being cleared at an accelerated pace, and the market share of leading companies is expected to increase. Demand side: The compressor sector is highly correlated with white goods and is expected to achieve steady growth; foreign demand for construction machinery is strong, the peak of domestic construction machinery replacement has passed, and overall construction machinery sales are recovering moderately; the boom in automobiles and wind power is expected to accelerate the demand of domestic foundry companies.
Take a stake in Liyuan Hydraulic to expand production as needed. The synergy effect superimposes capacity expansion, and opens the revenue ceiling. The company's current production capacity is difficult to meet growth demand, and outsourcing is unable to meet the company's development needs. Through the acquisition of Liyuan Jinhe, the company obtained a casting capacity target of 30,000 tons, and the production capacity of the fund-raising project is expected to be released in the third quarter of 2023. At the same time, the parts casting and machining processes carried out by Liyuan Hydraulic are upstream and downstream of the same industrial chain. The process technology can be learned from each other and improved, and the synergy effect is obvious.
Profit forecast and investment advice: The company's revenue for 23-25 is estimated to be 1,23/15.84/1,963 billion yuan, and net profit to mother is 2.74/3.46/433 million yuan. Considering that the company is one of the comprehensive foundry enterprises with cross-industry, multi-variety, and large-scale production capacity, the company is given a PE valuation of 16 times in 2024. The target price is 23.04 yuan, which is the first time that coverage gives a “buy” rating.
Risk warning: risk of deterioration of the macroeconomic environment, failure to absorb production capacity as expected, risk of subsidiary performance falling short of expectations, risk of fluctuations in raw material prices, risk of exchange rate changes.