Description of the event

The company disclosed its 2023 annual report: During the reporting period, the company achieved operating income of 2,115 billion yuan, a year-on-year increase of 27.13%, and realized net profit of 27.097 million yuan, an increase of 45.70% over the previous year; net profit after deduction of 79.016 million yuan, an increase of 11.14% over the previous year. The results fell short of previous expectations.

Incident reviews

In 2023, the company adhered to high-end leadership. In the field of high-end CNC systems, five-axis technology made great progress, and gradually formed a good reputation for “using five axes to find Chinese numbers” in the industry. During the reporting period, the company launched the entire Xinhuazhong 8-type high-end 5-axis CNC system product package and turn-milling composite product package, fully integrating 5-axis processing technology with digital+network+intelligence+, and fully upgraded and iterated on key 5-axis CNC technologies such as high-quality 5-axis processing, CAM & CNC integration, in-machine measurement, remote operation and maintenance. In terms of high-end 5-axis CNC systems exhibited at the 18th China International Machine Tool Exhibition, the company's supporting quantity has surpassed foreign brands. In line with market demand, we have cooperated with companies such as Shandong Haomai, Dongguan Evermi, Wuzhong Machine Tool, and Ningbo Haitian to jointly develop vertical, horizontal, and gantry five-axis machining centers. At the same time, we have deep cooperation with machine tool companies such as Amx, Huagong Laser, and Onke Laser to jointly develop various types of 5-axis machine tools such as 5-axis etching machines, 5-axis dispensers, and 5-axis laser cutting, to provide batch support for key enterprises in the fields of automobiles, parts, and laser processing.

During the reporting period, benefiting from the high-end product structure, the gross margin of the CNC system increased by 2.76 pct to 38.65% year on year; the company's cost control benefits were evident, and the cost ratio decreased significantly during the period. During the reporting period, the company's net sales margin was 1.10%, up 0.74 pct year on year; gross sales margin was 32.92%, down 1.14 pct year on year. Among them, the gross margin of CNC systems and machine tools was 38.65%, up 2.76 pct year on year, mainly due to significant breakthroughs in five-axis technology leading to an increase in sales of high-end CNC system products; the gross margin of robots and intelligent production lines was 26.88%, a decrease of 2.05 pct year on year. The company continued to reduce costs and increase efficiency, and the cost rate decreased by 2.31 pct to 33.34% year-on-year during the period. Among them, the sales expense ratio was 9.09%, a year-on-year decrease of 0.95pct; the management expense ratio was 8.09%, a year-on-year decrease of 1.18pct; the financial expense ratio was 1.60%, a year-on-year decrease of 0.11pct; and the R&D expense ratio was 14.56%, a year-on-year decrease of 0.07pct.

The company's industrial robot and intelligent production line business expanded at an accelerated pace, and sales volume of high-end CNC systems achieved good growth compared to the same period last year. During the reporting period, (1) the industrial robot and intelligent production line sector achieved revenue of 1,118 billion yuan, an increase of 35.53% over the previous year, accounting for 52.87% of revenue, an increase of 3.27pct over the previous year, mainly benefiting from the rapid development of the new energy power battery industry at home and abroad. (2) The field of CNC systems and machine tools (including CNC systems, motors, and CNC machine tool businesses) achieved revenue of 892 million yuan, an increase of 26.22% year on year. The revenue share fell 0.30 pct year on year to 42.18%, and sales volume of high-end CNC systems achieved good growth compared to the same period last year. (3) The special equipment business achieved revenue of 63.2627 million yuan, a year-on-year decrease of 28.19%. (4) The NEV supporting business achieved revenue of 21.799 million yuan, an increase of 96.28% over the previous year.

During the reporting period, Huashu Jinming's business achieved leaps and bounds, vigorously expanded overseas markets, and achieved historic breakthroughs. During the reporting period, Huashu's heavy-duty robot first entered the leading automobile manufacturer, photovoltaic, and energy storage company; Huashu Robotics' innovative technology was well received by internationally renowned 3C companies; it entered the international market in the field of NEV support, opening a new chapter of cooperation with international customers; it achieved historic breakthroughs in overseas markets and received export orders of more than 500 million yuan; and the Hungarian wholly-owned subsidiary was officially put into operation to serve customers in a trinity with the Changzhou Smart Factory and the Wuhan Intelligent Production Base.

Profit forecast, valuation analysis and investment suggestions: The company's high-end CNC system is in a leading position in the country, and the future domestic replacement market space is broad. We expect the company's net profit to be 100 million yuan, 130 million yuan, and 170 million yuan respectively, up 262.5%, 31.9%, and 29.8% year-on-year respectively. EPS was 0.5 yuan, 0.7 yuan, and 0.9 yuan respectively. According to the closing price of 27.86 yuan on April 8, PE was 56, 43, and 33 times, respectively, maintaining a “buy-A” investment rating.

Risk warning: risk of macroeconomic fluctuations and industry fluctuations; risk of increased market competition; risk of technology research and development; risk of increasing procurement costs of raw materials.