Q4 Annual profit declined due to poor tool shipments

Okeyi released its annual report. In 2023, it achieved revenue of 1,026 million yuan (yoy -2.73%), net profit of 166 million yuan (yoy -31.43%), and deducted non-net profit of 130 million yuan (yoy -42.33%). Among them, Q4 achieved revenue of 222 million yuan (yoy -13.27%, qoq -18.44%) and net profit to mother of 6.430,800 yuan (yoy -88.00%, qoq -87.43%). As the recovery in downstream demand fell short of expectations, the company's 2024-25 profit forecast was lowered and the 2026 profit forecast was added. The company's net profit for 2024-2026 is expected to be 2.03, 2.40, and 281 million yuan, respectively (31% and 34% lower than the previous values of 2.95 and 361 million yuan in 2024-2025). Comparatively, the company's 24-year Wind unanimously expected an average PE value of 38 times. Considering the relatively low growth potential of the company's hard alloy products business, the company was given 25 times PE in 24 years, with a target price of 32 yuan (previous value of 51.8 yuan), maintaining a “buy” rating.

Average tool prices have increased. Looking at new product developments in aerospace, rail transit, wind power and other fields in 24 years, the company's CNC tools and hard alloy products achieved revenue of 5.79 million yuan and 445 million yuan respectively, or -10% compared to the same period. The company's CNC tool business achieved sales of 87.73 million pieces throughout the year, down about 11% year on year, and the average price was 6.6 yuan/piece, up 2% year on year. It is estimated that the proportion of high-value products has increased.

During the year, the company focused on the import substitution of high-end tools and developed OP6 series high temperature alloy turning blades for aerospace applications. The CVD steel turning OC24 series products developed are used in the field of wheel and shaft parts turning in rail transit. The future development in aerospace, rail transit, wind power gears, etc. is worth looking forward to. The increase in revenue from the product business is mainly due to an increase in bar sales.

The export business has grown rapidly. Tool exports have accounted for nearly 20% of tool revenue. During the year, the company increased its overseas development efforts. Overseas brand agents continued to increase, and the overseas layout was further improved. Overseas sales revenue was 140 million yuan, an increase of 31% over the previous year. Among them, the export revenue of CNC tool products reached 110 million yuan, and the export of CNC tool products accounted for 19% of the CNC tool revenue. The average price of exported tools increased from 9.18 yuan/piece last year to 10.1 yuan/piece. In 23 years, the company has sold overseas in nearly 60 countries, and future export growth is worth looking forward to.

Decreased capacity utilization has led to a decline in profitability

The company achieved gross profit margin of 29.32% and net profit margin of 16.17% during the year, -7.43 and -6.77pct year-on-year, respectively.

Among them, the gross margins of CNC tools and hard alloy products decreased by 7.1% and 5.3% respectively, mainly due to a decline in product sales and a decrease in capacity utilization due to the expansion of new bar production capacity, leading to an increase in depreciation, etc. In terms of cost ratios, the company's sales, management, R&D, and financial expense ratios were +2.02/-0.9/+1.2/+0.57pct, respectively. The increase in the sales expense ratio is mainly due to the fact that sales staff incentives in this period are included in sales expenses in the form of cash rewards. At the same time, marketing expenses and business hospitality expenses have also increased in this period. The increase in the R&D cost rate is mainly due to increased investment in R&D by companies and an increase in the remuneration of R&D personnel.

Risk warning: 1) The progress of products going overseas fell short of expectations; 2) the domestic competition pattern deteriorated beyond expectations; 3) raw material prices rose beyond expectations.