Incident: The company issued an announcement stating that the number of shares to be issued will not exceed 44,35,573 shares (7.2% of the current share capital), the issue price will be 45.09 yuan/share, and the total amount raised will not exceed 200 million yuan. Xiao Xukai, the actual controller and chairman of the company, will use cash to subscribe for all shares issued this time.

The chairman fully subscribed at the bottom of the industry, demonstrating confidence in the company's development. The purpose and impact of this fixed increase:

① The net amount of this fixed increase after deducting the relevant issuance expenses was all used to supplement working capital and loan repayment, optimizing the company's financial structure and strengthening its business development capabilities; ② Actual controllers Xiao Xukai, Wang Yuqin, and Gao Ying controlled a total of 38.7% of the company's shares. After the issuance was completed, the three actual controllers controlled a total of 42.8% of the company's shares. Among them, the actual shareholding ratio of the three increased from 35.1% to 39.4%. Chairman Xiao Xukai promised that the shares obtained in this issuance to specific targets will not be transferred within 36 months from the date the issuance was completed; this full subscription shows the actual controller's confidence in the company's future development prospects.

Tools are industrial consumables. They are tough in the downward direction and elastic in the upward direction. The extremely low service life (in hours) makes the tool consumable properties obvious, and as an execution unit for an industrial mother machine, its application range basically covers the entire industrial field. Therefore, as long as the national economy continues to operate normally, demand for tools will remain resilient, and when there is a pro-cyclical recovery, changes in demand respond as soon as possible and are more flexible. Looking at the short cycle, China's industrial inventory cycle is currently at the end of inventory removal. When a new round of inventory replenishment cycle arrives, the boom in the domestic tool industry will reverse.

High-end, direct marketing, and internationalization are important driving forces for the healthy development of the industry and companies. We emphasize: ① High-end products are an effective way to avoid price competition and maintain profit levels; ② Direct sales can weaken the intensity of competition, increase customer stickiness, and reduce the price difference between intermediaries, which is beneficial to tool companies; ③ The size of the overseas tool market is 4 times that of the domestic market, and the incremental contribution of the overseas market after 2024 cannot be ignored.

Profit forecasting and investment advice. The company's net profit for 2023-2025 is estimated to be 1.6, 2.1 billion yuan, and 3.0 billion yuan respectively. The compound net profit growth rate for the next three years will be 22%, maintaining a “buy” rating.

Risk warning: the risk of macroeconomic fluctuations, the risk of increased industry competition, and the risk of new product promotion falling short of expectations.