On April 9, 2024, the “China CNC Machine Tool Exhibition 2024” was held in Shanghai. Huazhong CNC participated in the exhibition and officially released the latest products, the Huazhong CNC five-axis flagship product package, the new 3C drilling center product package, processing robot automation solutions, and the intelligent application of AI-enabled machine tools. For the first time, a large model was applied to it, making the CNC system equipped with functions such as automatic production and processing codes and continuous enhanced learning fault identification management. We believe that this system will significantly reduce the difficulty of machine tool operation, increase customer (machine tool operator) stickiness, and is a revolutionary product of machine tool CNC systems. As the product gradually matures, it is expected to effectively increase the company's market share. Maintain an “overweight” investment rating.

The “China CNC Machine Tool Exhibition 2024” was held in Shanghai, and Huazhong CNC launched a variety of new products. From April 8 to 12, 2024, the China CNC Machine Tool Exhibition was held at the Shanghai New International Exhibition Center. Nearly 2,000 machine tool companies from 28 countries and regions participated in the exhibition. On April 9, 2024, Huazhong CNC, the leading CNC system for high-end machine tools in China, unveiled a series of new products at the exhibition, such as the Huazhong CNC 5-axis flagship product package, the new 3C drilling center product package, processing robot automation solutions, and the intelligent application of AI-enabled machine tools. Among them, the intelligent application of AI-enabled machine tools received the most attention.

The Huazhong Type 9 CNC system integrates CNC system AI based on a large model. The biggest highlight of the company's Huazhong 9 CNC system is that it integrates AI chips, integrates AI algorithms, integrates big data, integrates large models, and integrates powerful computing power to form a true intelligent CNC system platform, providing technical support for building an intelligent ecosystem, so that the machine tool CNC system greatly reduces the threshold of human-computer interaction, and has “feedback-learning-evolution” deep learning capabilities. Three major breakthroughs have been made in terms of functionality:

(1) Human-computer natural language interaction: The live demonstration experience is good. The system can easily recognize the natural language of the vast majority of participants and give corresponding feedback;

(2) Generative processing code: processing requirements are described to the CNC system through natural language, and the system can accurately generate corresponding processing codes; according to the degree of detail of the requirements described by the operator, the system can provide quite accurate parameter settings;

(3) Generative fault diagnosis and treatment: The system can monitor the operating status of the machine tool in real time, have a high ability to identify abnormal operation and identify the cause of the anomaly, give parameters and suggestions for modification, and directly “send” it to the CNC system.

Furthermore, the AIGC program can be downloaded to a mobile phone or other mobile terminal, making it very easy to use. We believe that this system will significantly reduce the difficulty of machine tool operation and will effectively increase customer (machine tool operator) stickiness.

Maintain an “overweight” investment rating. Machine tool numerical control systems are a key “stuck neck” field in China's manufacturing industry. After years of development, the performance of domestic products has gradually caught up with or even surpassed that of overseas brands, and is currently at a critical point of rapid localization and replacement. Huazhong CNC is a leader in the field of CNC systems for high-end machine tools in China. It is also a leader in achieving localization and substitution in this field. Over the years, it has accumulated deep technical accumulation and good brand reputation. We believe that the i9 CNC system released by Huazhong CNC has significantly reduced the difficulty of machine tool operation, is a revolutionary product in the industry, and will effectively increase customer stickiness and the company's product market share. Maintaining the company's previous performance forecast, revenue for 2024-2026 is expected to be 25.8/30.96 billion yuan, +22%/20%/18% year over year, and net profit to mother is 1/16/220 million yuan, +277%/58%/36% year over year. Maintain an “Overweight” rating.

Risk warning: Demand for CNC systems is lower than expected, sales of new products are lower than expected, risk of fluctuations in raw material costs, risk of exchange rate fluctuations.