A national-level specialized and innovative enterprise, the industry has been deeply involved in building a leading domestic tool manufacturer for 17 years. The company specializes in tungsten carbide CNC tool products. It first started by producing non-standard customized tools, then expanded standardized tools with strong common demand. Through the establishment of a nationwide sales network, the company quickly opened up domestic and foreign markets. After 17 years of development, the company has grown into a leading domestic tungsten carbide tool enterprise, and the scale of CNC blades ranks among the highest in the industry. In 2017-2022, the compound growth rates of the company's revenue and net profit to mother were 35.00% and 39.61%, respectively. The gross margin remained around 50%, and the ROE performance was excellent all year round. With the gradual implementation of IPO projects and convertible bond projects, the company's production capacity is increased and the product line is expanded, and its comprehensive strength will be further enhanced, and it is expected to transform into an overall tool solution provider.
The global tool market exceeds 30 billion US dollars, and the domestic scale exceeds 40 billion yuan. In the context of autonomous control and industrial upgrading, it is time to replace domestic tools. As a key component of an industrial mother machine, tools are known as “industrial teeth”. The market space is vast. The global tool market exceeds 30 billion US dollars, and the domestic tool market exceeds 40 billion yuan. In 2022, China's machine tool CNC rate and tool consumption accounted for about 46.33% and 25.17% of machine tool consumption, respectively. There is still a big gap with the higher levels of 60% + and 50% in developed countries. In the context of emphasizing the transformation and upgrading of the manufacturing industry and autonomy and control, the size of the domestic tool market is expected to continue to expand. Furthermore, the tool industry in developed countries such as Europe, America, Japan, and South Korea started early and occupied a large share with its first-mover advantage, and had a strong competitive advantage, especially in the middle and high-end markets. Domestic tool manufacturers have caught up in recent years and have continuously strengthened their technical strength. After the middle and low end markets have completed domestic substitution, they have strengthened their penetration into the middle and high-end markets. The import dependency of domestic tool consumption has decreased year by year. The import ratio has dropped from 37.18% in 2015 to 27.16% in 2022, and domestic replacement is on the rise.
Based on technology, products, channels, and production capacity work in multiple directions to transform into an overall service solution provider. ① At the technical level, the company adopts the R&D strategy of “concentration advantage and single product breakthrough”, focusing on research and innovation in the four major fields of hard alloy CNC blade substrate materials, groove structure, precision molding and surface coating. It has many independent core technologies and excellent independent R&D and design capabilities. ② In terms of products, the company's leading products, milling blades, have excellent performance, are comparable to high-end products from Japan and South Korea, and are gradually seizing the share of Japanese and South Korean peers with their cost performance advantages. Furthermore, through a multi-brand strategy, the company has implemented different product development plans for different markets, industries, and customers. ③ In terms of channels, the company is based on a mature distribution network system. On the one hand, it is making efforts to develop direct sales customers and promote the provision of customized overall solutions; on the other hand, it is continuously increasing overseas market development. Currently, the company's products have been exported to India, South Korea, Russia, etc., and 2023H1 has achieved overseas revenue of 16 million yuan, +42.99% over the same period last year. ④ In terms of production capacity, the company continues to expand production capacity and categories through the implementation of IPO projects and convertible bond projects, which is expected to greatly enhance its competitive advantage in the tool field and lay a solid foundation for the company to become an industry-leading overall tool solution provider.
Investment advice
The company is a leading domestic tungsten carbide CNC blade brand. Its technical strength and product performance are outstanding. In recent years, it has continuously accelerated its penetration into the middle and high-end fields through direct sales to major customers and overseas markets. With the gradual implementation of the company's IPO projects and convertible bond projects, production capacity expansion and SKU expansion go hand in hand, and future growth can be expected. We expect the company to achieve revenue of 7.94/10.05/1,234 billion yuan in 2023-2025, +31.96%/+26.57%/+22.80%; net profit to mother is 1.57/2.19/ 281 million yuan, -5.63%/+40.06%/+28.22% YoY. The current stock price corresponds to 24/17/14 times PE, covering for the first time, giving a “buy” rating.
Risk warning
Market competition increases risk; downstream market demand falls short of expectations, etc.