Key points of investment:
Neway CNC (688697.SH) released its 2023 full-year results report. The company achieved operating income of 2,321 billion yuan, an increase of 25.76% over the previous year, and achieved net profit of 318 million yuan to mother, an increase of 21.13% over the previous year.
Rapid overseas growth pushes the company's revenue to grow against the trend
The company's 2023 annual report achieved operating income of 2,321 billion yuan, an increase of 25.76% over the previous year, and achieved net profit of 318 million yuan, an increase of 21.13% over the previous year; after deducting non-net profit of 276 million yuan, an increase of 24.57% over the previous year.
By business in 2023: large machining centers achieved revenue of 959 million, up 14.98% year on year, accounting for 41.33%; CNC vertical machining center revenue was 646 million, up 29.72% year on year, accounting for 27.83% of revenue; CNC horizontal machining center revenue was 692 million, up 41.83% year on year, accounting for 29.8% of revenue. The company's main CNC machine tool products have all experienced significant growth.
The company's domestic business revenue was 1,638 million, up 6.66% year on year; foreign business revenue was 705 million, up 112.99% year on year. The rapid growth in foreign business has driven the company's revenue to grow rapidly against the industry situation.
Affected by market conditions, the company's gross profit margin and net interest rate declined slightly. In 2023, the company's gross margin was 26.46%, down 1.03 percentage points year on year; net interest rate was 13.69%, down 0.52 percentage points year on year; after deducting non-net interest rate of 11.89%, down 0.11 percentage points year on year.
The main reason is 1) Due to factors such as weakening demand, increased market competition, falling prices for some products, and rising labor costs, the machine tool industry's revenue, profit, and gross margin were clearly under pressure in 2023. In addition to CNC horizontal machining centers, the gross margin of the company's main products all declined, driving the overall gross margin decline; 2) Foreign sales revenue increased sharply by 112.99%, and the gross profit margin of foreign products increased by 31.35%, an increase of 3.58 percentage points over the previous year. The increase in the company's overseas share better hedged the decline in gross margin.
By business: in 2023, the gross profit margin of large machining centers was 24.47%, down 2.89 percentage points; the gross profit margin of CNC vertical machining centers was 25.28%, down 0.05 percentage points from the previous year; the gross profit margin of CNC horizontal machining centers was 30.2%, up 0.57 percentage points from the previous year.
The gross profit margin of the company's foreign business is 31.35%, which is much higher than the gross profit margin of the domestic business of 24.14%. The foreign business grew by 112.99%, and the growth rate was much higher than the domestic business growth rate (6.66%).
The machine tool industry cycle has bottomed out and ushered in recovery. As a leading CNC machine tool company, the company is one of the few suppliers in China that can provide a rich variety of CNC machine tool models. After a long period of technology accumulation, the company has launched a series of more than 200 types of machine tool products, such as large-scale machining centers, vertical CNC machine tools, horizontal CNC machine tools, etc., which are at the forefront of the domestic CNC machine tool industry.
According to estimates by the China Machine Tool Industry Association, China's metalworking machine tool production volume in 2023 was 193.5 billion yuan, an increase of 1.1% over the previous year. Among them, the production volume of metal cutting machine tools was 113.5 billion yuan, a year-on-year decrease of 6.7%. China's metalworking machine tool consumption was RMB 181.6 billion, down 6.2% year on year, of which metal cutting machine tool consumption was RMB 110.8 billion, down 15% year on year.
Statistics from key companies contacted by the China Machine Tool Industry Association in 2023 show that new orders and in-hand orders for metalworking machine tools decreased by 8.0% and 14.3%, respectively, over the same period last year. Due to factors such as weakening demand, increased market competition, falling prices for some products, and rising labor costs, the total profit of the machine tool industry fell 35.8% year on year in 2023, 25.5 percentage points higher than the year-on-year decline in operating income, and the profit margin was 4.1 percentage points lower than the same period last year.
According to the statistics of enterprises above scale released by the National Bureau of Statistics, China's metal cutting machine tool production in 2023 was 613,000 units, up 6.4% year on year. Since September 2023, it has ended 17 months of continuous decline, and has resumed and maintained more than double-digit growth for 6 consecutive months. From January to January 2024, metal cutting machine tool production was 92,300 units, a cumulative increase of 19.5%.
The metal cutting machine tool industry has clearly bottomed out since the fourth quarter of last year, ending the continuous downward trend since 2021, and is expected to usher in a new round of cyclical recovery. As a leading domestic CNC machine tool company, the company is fully benefiting from the cyclical recovery of the machine tool industry and is expected to usher in a new round of performance growth.
Equipment renewal in the industrial sector. The catalytic industry needs to upgrade and replace old machine tools for more than 10 years. On March 13, 2024, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”. The plan proposes to support the renewal of transportation equipment and old agricultural machinery.
In April 2024, the Ministry of Industry and Information Technology jointly issued the “Implementation Plan for Promoting Equipment Renewal in the Industrial Sector”, which will focus on promoting new industrialization and implementing technological transformation and upgrading projects in the manufacturing industry, using large-scale equipment upgrades as a starting point. The implementation plan mentions: The first is to implement advanced equipment renewal actions. For industries such as industrial machinery, agricultural machinery, construction machinery, etc., speed up the upgrading and replacement of outdated and inefficient equipment such as old machine tools that have been in service for more than 10 years.
China's machine tool industry has obvious cycle and growth characteristics. The high point of the last round of the industry cycle was around 2011-2014, with an annual output of 860,000 units, and the low point was only 416,000 units around 2019. From September 2023, metal cutting machine tool production gradually ended a downward trend of nearly 2 years and changed to continuous growth for 6 months. The industry bottomed out and rebounded clearly. According to the policy of accelerating the renewal of older machine tools over 10 years, machine tools at the peak of the industry cycle in the last round just reached a service life of more than 10 years and are facing renewal. This round of industrial equipment updates focuses on the renewal of machine tool equipment over 10 years old, which will clearly catalyze industry renewal and drive machine tool industry demand.
Focusing on the core technology of CNC machine tools and continuously improving core competitiveness, the rapidly growing company has long been committed to the R&D, production and sales of high-end CNC machine tools, attaches importance to R&D investment and technological innovation, and has participated in major scientific research projects in many countries and Jiangsu Province. The company undertook a total of 9 R&D projects, including “High-end CNC Machine Tools and Basic Manufacturing Equipment”, a major national science and technology project, and a special project for high-quality development of the manufacturing industry, improving the overall performance of CNC machine tools in terms of accuracy, processing efficiency, and reliability.
The company has mastered core technologies in six major fields: the field of machine tool accuracy and maintenance, the field of high-speed machine tool movement, the field of machine tool fault analysis and solution, the field of convenient operation, the field of complex parts processing, and the field of independent research and development of functional components, thus achieving the high accuracy, high efficiency and high reliability of the company's CNC machine tool products. Among them, products such as high-performance high-speed horizontal machining centers and turning/milling composite CNC machine tools launched by the company using core technology have reached a relatively advanced level in terms of performance indicators. Some products already have competitive advantages compared with foreign competitors, and have gradually been recognized and purchased by domestic customers.
The company actively promotes independent research and development of core machine tool components. It has developed some core functional components for machine tools, such as high-torque electric spindles and high-precision CNC turntables, etc., to achieve autonomous and controllable supply of such core functional components and effectively reduce product costs, thereby improving the market competitiveness of the company's products.
The company's revenue grew from only 636 million yuan in 2017 to 2,321 million in 2023. The compound revenue growth rate in 6 years was 24.08%, and net profit increased from 121 million yuan in 2017 to 318 million yuan in 2023. The compound net profit growth rate in 6 years was 57.29%. On the basis of focusing on the core technology and core competitiveness of CNC machine tools, the company's business achieved continuous rapid growth.
Profit forecasting and valuation
The company is a leading domestic CNC machine tool enterprise. Benefiting from the domestic machine tool industry cycle recovery and large-scale industrial equipment updates, industry demand is expected to recover, and the company fully benefits as a leading enterprise. We predict that the company's revenue from 2024 to 2026 will be 2,825 million yuan, 3.339 billion, and net profit to mother will be 387 million, 465 million, and 550 million respectively. The corresponding PE is 15.72X, 13.08X, and 11.06X, respectively. The company's valuation is reasonable, the industry is facing a cyclical inflection point, and the company's dividends are stable. At the same time, the 2021 and 2022 reports will reach 50%. The 2023 report is expected to pay 6 yuan per 10 shares, with a dividend ratio of 60 yuan %, with a dividend rate of over 3%, the first coverage gave the company a “buy” rating.
Risk warning: 1: macroeconomic sentiment falls short of expectations: 2: fixed asset investment in the manufacturing industry falls short of expectations; 3: industry competition intensifies and gross margin declines; 4: Localization progress falls short of expectations.