Incident: The company released its annual report for 2023, achieving revenue of 2,321 billion yuan, an increase of 25.76% year on year; realized net profit of 318 million yuan, up 21.13% year on year; realized net profit without return to mother of 276 million yuan, an increase of 24.57% year on year. Looking at a single quarter, 23Q4 achieved revenue of 582 million yuan, up 16.79% year on year and down 7.82% month on month; realized net profit to mother of 82 million yuan, up 12.58% year on year and 2.44% month on month.
Overseas business doubled, and performance bucked the trend. In 2023, China's metalworking machine tool consumption was 181.6 billion yuan, down 6.2% year on year, while the company's performance bucked the trend, achieving revenue of 2,321 billion yuan, up 25.76% year on year, achieving net profit of 318 million yuan, up 21.13% year on year, and comprehensive gross margin of -1.03 pct year on year to 26.46% year on year. On the domestic side, due to weakening domestic demand and increased competition, the company's domestic business revenue increased 6.66% year on year to 1,604 billion yuan, and gross margin decreased by 3.14 pcts year on year to 24.14% year on year; overseas sales reached more than 50 countries/regions in 23 years, overseas revenue increased 112.99% year on year to 705 million yuan, and gross margin increased 3.58 pcts year on year to 31.35% year on year.
Expense control is developing for the better. The company implemented fine management during the reporting period, strictly controlled material procurement, product design and various expenses, and cost control developed positively. In 2023, the company's sales/management/finance/R&D expenses rate was 6.93%/1.65%/0.17%/4.39%, respectively, -0.05pct/-0.28pct/+0.15pct/-0.05pct year-on-year.
The details of the large-scale equipment renewal action plan were released, and demand was strongly boosted. Recently, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which states that it is necessary to focus on promoting new industrialization, with energy saving and carbon reduction, ultra-low emissions, safe production, digital transformation, and intelligent upgrading as important directions, focusing on key industries such as steel, non-ferrous, petrochemicals, electricity, machinery, aviation, ships, etc., and vigorously promoting the upgrading and technological transformation of production equipment, energy use equipment, power generation, transmission and distribution equipment. The intelligent upgrading and transformation of traditional industries is about to be implemented.
Actively promote production capacity construction, and the full commissioning of the project may improve the company's operating performance. According to the company's announcement, at present, the company is almost full production, and a small amount of surplus production capacity is used for pre-investment of standard models. The third phase of the fund-raising project will be fully put into operation in 2024; the “Phase IV High-end Intelligent CNC Equipment and Core Functional Components Project” is under construction and is expected to be completed by the end of '24 and put into operation in '25. The full commissioning of the project may further enhance the company's production capacity and operating performance.
Investment advice: We expect the company to achieve net profit of 388/4.86/569 million yuan in 24-26 respectively, corresponding PE of 16.85/13.46/11.5 times, respectively. The company is a leading domestic CNC machine tool enterprise. It relies on export sales to achieve rapid growth during the period of weak demand in the industry, and is optimistic about the long-term development of the company supported by manufacturing recovery and superposition policies. Maintain a “Recommended” rating.
Risk warning: technology upgrades and iterations falling short of expectations, risk of core technology leakage, risk of dependency on imports of core components