Incident: On February 26, 2024, the company announced its 2023 annual results report. It is expected to achieve operating income of 603 million yuan in 2023, +45.52% year over year; achieve net profit of 101 million yuan, +61.37% year over year; achieve net profit without return to mother 85 million yuan, +50.06% year over year. Compared with the previously released performance forecast (which is expected to achieve operating income of 590 million yuan to 620 million yuan and net profit after deducting non-return to mother of 0.72 million yuan to 86 million yuan in 2023), the net profit deducted from the performance report fell at the upper limit of the performance forecast range value, and the operating income disclosed in the performance report fell in the middle of the performance forecast range value.
Performance growth is in line with expectations, and downstream applications continue to expand. The steady growth of the company's revenue and net profit in 2023 is mainly due to the recovery in the prosperity of downstream industries such as consumer electronics and automobiles, the overall development of the company's tool business, continued growth in the number of customer orders, steady increase in market share and market penetration rate, and accelerated expansion and breakthroughs into downstream application fields such as aerospace, precision molds, engineering and general machinery.
The new product has been recognized by customers, and demand for 3C titanium alloy processing tools is high. In 2023, the company's new products such as tools for processing titanium alloy structural components for 3C electronic products, fairway PCBN cutters for constant velocity universal joint processing, and PCBN rotary milling blades for ball screw processing were introduced to the market one after another, achieving market breakthroughs and revenue growth. In particular, structural parts processing tools suitable for a new generation of smart phones made of titanium alloy materials increased, and demand for corresponding tools began to increase dramatically in 2023Q2. We believe that as mobile phone manufacturers such as Apple, Xiaomi, and Samsung use titanium alloy materials one after another, the company's 3C electronic products use titanium alloy structural parts processing tools as ideal tools for processing titanium alloys, and it is expected that they will continue to be released at a high speed.
Continuing to advance the internationalization strategy, the European subsidiary's business ushered in major breakthroughs. The company has successfully developed and established a global customer resource system, focusing on the Asian, North American and European markets. Customers include some world-renowned parts manufacturers with good sales repayment conditions and stable product demand. Furthermore, it has established a good international reputation for technology research and development, product quality, and follow-up support services. In the first half of 2023, the European subsidiary achieved a major breakthrough in business, completed the layout of sales networks in Germany, Romania, Hungary, Spain, Italy, France, Finland, Sweden and other countries, and has signed 13 agents. In the future, with the continuous development of the European market, it is expected to contribute new momentum to the company's performance growth.
Investment advice: As a leading comprehensive tool solution provider in China, the company is one of the few domestic companies that can master the three major preparation processes of the CVD method. In the future, with the recovery of consumer electronics and titanium alloying of 3C materials becoming a trend, the company's performance is expected to continue to grow rapidly, adding the company's own rich customer resources and the development of overseas markets such as Europe. We expect the company's revenue in 2023-2025 to be 6.03/764/928 million yuan, up 45.5%/26.8%/21.4% year on year; net profit to mother of 1.01/1.40/168 million yuan, with a year-on-year growth rate of 61.4%/37.6%/20.1%, EPS, respectively 0.66/0.91/1.09 yuan, corresponding PE is 27/20/17 times, giving a “buy” rating for the first time coverage.
Risk warning: macroeconomic downside risk; increased risk of industry competition; risk of downstream demand falling short of expectations; risk of fluctuating raw material prices; risk of technology route iteration.