Investment event: The company discloses its 2023 annual report. In 2023, the company achieved operating income of 2,321 billion yuan, a year-on-year increase of 25.76%; realized net profit of 318 million yuan, an increase of 21.13% over the previous year; and realized deducted non-net profit of 276 million yuan, an increase of 24.57% over the previous year.
Downstream demand is weak, and the company's performance has maintained steady growth, which is superior to the industry. China's overall economy showed a weak recovery trend in 2023, and demand in the machine tool industry was weak. According to statistics from the China Machine Tool Industry Association, in 2023, new orders and in-hand orders from key linked companies decreased by 8% and 14.3%, respectively; the total profit of the machine tool industry decreased by 35.8% year on year. The company grasps segments with high demand, such as aerospace and semiconductors, and continuously promotes high-end product development and enhances product competitiveness; on the other hand, it continues to strengthen overseas market expansion to achieve contrarian growth in annual performance. Q4 The company's revenue in a single quarter was 582 million yuan, +16.79%/-7.82% YoY; net profit was 82 million yuan, +12.58%/-2.44% YoY. By product, the company's large machining center revenue in 2023 was 959 million yuan, +14.98%; vertical CNC machine revenue was 646 million yuan, +29.72% year over year; and horizontal CNC machine revenue was 692 million yuan, +41.83% year over year.
Profit levels are under pressure, and cost control continues to be optimized. In 2023, the company's gross margin/ net margin was 26.46%/13.69%, -1.03pct/-0.52 pct year on year. Mainly due to increased competition in the domestic market, the company's gross margin of domestic sales fell 3.14pct to 24.14% year on year. With the gradual advancement of the company's refined management, the cost rate for the period was continuously optimized. The annual sales/management/finance expense ratio was 6.93%/1.65%/0.17%, respectively, -0.05pct/-0.28pct/+0.15pct. The company focuses on high-end CNC machine tools, and continues to increase R&D investment and technological innovation. In 2023, the company spent 102 million yuan on R&D, and the R&D cost rate was 4.39%.
Overseas markets performed well, which strongly supported performance growth. In 2023, China exported 7.78 billion US dollars of metalworking machine tools, an increase of 25.4% over the previous year, achieving a trade surplus. The company has mastered a series of core technologies. Some products, such as high-performance high-speed horizontal machining, turning and milling composite CNC machine tools, and five-axis vertical machining centers, have certain international competitiveness, and are actively exploring overseas markets. The products are sold to more than 50 countries and regions, including the United States, Germany, the United Kingdom, Italy, and Brazil. In 2023, the company's overseas revenue reached 705 million yuan, a sharp increase of 112.99% year on year, accounting for 30.36% of total revenue, up 12.43 pcts year on year. At the same time, gross margin of export sales increased by 3.58 pct to 31.35% year-on-year, effectively smoothing domestic market fluctuations. The third phase of the company's production capacity will reach full production in 2024; the fourth phase of the high-end intelligent CNC equipment and core functional components project has a design capacity of 700 million yuan. It is expected to be completed by the end of 2024 and put into operation in 2025. The gradual release of production capacity will further enhance the company's ability to deliver orders and provide a guarantee for domestic and overseas market development. As China's macroeconomic economy stabilizes, the inventory cycle is expected to bottom out and enter the inventory replenishment stage. Combined with the central government's support policies to promote large-scale equipment upgrades and tax credits for industrial mother engines, the industry sentiment is expected to improve, and the company will fully benefit.
Profit forecast and investment advice: The company is expected to achieve net profit of 384 million yuan, 457 million yuan, and 549 million yuan respectively in 2024-2026, corresponding EPS of 1.18, 1.40, and 1.68 yuan, corresponding to PE of 17 times, 14 times, and 12 times, maintaining the recommended rating.
Risk warning: risk of economic recovery falling short of expectations, risk of new product expansion falling short of expectations, risk of rapid iteration of core technology, risk of increased market competition, etc.