Report summary

Event: The company released its 2023 annual report, achieved revenue of 2.115 billion yuan in 2023, +27.13% year on year, and net profit of 27 million yuan to mother, +45.70% year-on-year

The improvement of the CNC system product structure increased sector profits, and the cost control results were remarkable. In 2023, the company's gross sales margin was 32.92%, a slight decrease of 1.14 pcts year on year; the net profit margin was 1.10%, +0.75 pcts year on year. By sector, the gross profit margin of the CNC system and machine tool sector was 38.65%, with a year-on-year increase of +2.76pcts, which mainly accounted for an increase in sales of high-end products; the gross profit margin of robots and intelligent production lines was 26.88%, down 2.05pcts year over year. We judge that it is mainly due to the increased impact of competition in the industry. Expense control results were remarkable. During 2023, the cost ratio was 33.34%, a year-on-year decrease of 2.32pcts. Among them, sales/management/finance/R&D expenses were 9.09%/8.09%/1.60%/14.56%, respectively, -0.95/-1.18/-0.11/-0.07 pcts year-on-year, respectively. We believe that with the acceleration of domestic substitution in the industrial mother engine industry chain and the release of scale effects, the company's profitability is expected to improve.

Domestic replacement of high-end CNC systems is accelerating. New products and new customers are progressing well. In 2023, the CNC system and machine tool sector achieved revenue of 892 million yuan, an increase of 26.22% over the previous year; the gross profit margin was 38.65%, +2.76pcts year on year. The high-end and intelligent CNC system route continues to advance, with in-depth cooperation with high-quality downstream customers such as Shandong Haomai, Dongguan Evmi, Amx, Huagong Laser, and Qinchuan Machine Tool, etc., to continuously improve product performance; great progress has been made in five-axis technology, and the entire Xinhuazhong 8-type high-end 5-axis CNC system product package and turn-milling composite product package have been launched. Sales of high-end CNC systems increased by nearly 60% compared to last year. In the field of general-purpose CNC machine tools, using a strategy of sinking high-end technology, the Huazhong 8 CNC system continues to advance and steadily improve supporting models such as turning, milling, grinding, and 3C.

The new energy boom continues to drive high growth in intelligent production lines. Breakthrough growth in overseas orders can be expected to benefit from the rapid development of the new energy power battery industry. In 2023, the company's industrial robot and intelligent production line sector achieved revenue of 1,118 billion yuan, an increase of 35.53% over the previous year. In the field of industrial robots, the company's large load series product line continues to expand and increase, covering loads of 210 kg, 300 kg and 360 kg. It also entered leading automotive OEMs, photovoltaics, and energy storage companies for the first time. In the field of intelligent production lines, the company actively pursues a global strategy. The subsidiary Hungary is officially put into operation, and has achieved historic breakthroughs in overseas markets. In 2023, it received more than 500 million yuan in export orders. Changzhou Huashu Jinming achieved revenue of 744 million yuan, an increase of 80.549% over the previous year

Investment advice

The company is expected to achieve revenue of 2,412 billion yuan/3,271 billion yuan/4,027 billion yuan, and net profit to mother of 70 million yuan/169 million yuan/247 million yuan. The price-earnings ratio corresponding to the current stock price is 87X/36X/24X, maintaining a “buy” rating.

Risk warning

The recovery of the manufacturing industry fell short of expectations, domestic substitution fell short of expectations, market competition intensified, new product development fell short of expectations, and customer expansion fell short of expectations