Investment summary

Delivery of ordered equipment continued to resume, and the company's performance grew rapidly:

In 2023, the company achieved revenue of 479 million yuan, +42.5% year on year; realized net profit of 118 million yuan, +149.4% year over year; realized net profit without deduction to mother of 96 million yuan, +351.44% year over year. Among them, 2023Q4 achieved revenue of 130 million yuan in a single quarter, +36.59% year on year, and realized net profit to mother of 0.2 billion yuan, -14.13% year on year. The rapid growth in the company's performance was mainly due to the gradual stabilization of work such as delivery of related equipment, and confirmation of an increase in revenue compared to the same period last year. By business revenue: In 2023, fully automatic CNC roller grinding machines achieved revenue of 404 million yuan, +46.31%; spare parts products achieved revenue of 39 million yuan, +33.51% year over year; maintenance and modification business achieved revenue of 35 million yuan, +21.39% year over year. 2024Q1 achieved revenue of 125 million yuan, +21.3% year over year; net profit to mother of 0.27 million yuan, +81.1% year over year, and performance continued to grow steadily.

The ability to control expenses is good, and accounts receivable & asset impairment rush back drive a high increase in net profit:

In 2023, the company's gross sales margin was 34.3%, +1pct year on year. Profitability increased, mainly due to a decrease in raw material prices.

By product, the gross margin of fully automatic CNC roller grinding machines in 2023 was 34.12%, +1.60pct; the gross margin of the maintenance and modification business was 33.51%, -2.05pct year on year; and the gross margin of the spare parts business was 35.49%, -0.84pct year on year. In 2023, the company's net sales margin reached 25.6%, +9.3pct year on year, and the cost rate for the period reached 14.5%, +0.1 pct year on year. Among them, the sales/management (including R&D) /financial expenses ratio was -1 pct/-4 pct/+5.1pct year on year. The increase in the company's profitability was mainly due to increased collection of accounts receivable and recovery of asset impairment losses; the 2024Q1 company's gross sales margin was 31.8%, -1 pct year on year, with a net sales margin of 22.4%, +6.5 pct year on year. The cost rate for the period reached 14.2%, +0.5pct year on year. Among them, sales/management (including R&D) /financial expenses ratios were +0.4pct/-1.6pct/+1.6pct year-on-year, respectively? The roller grinder faucet cuts into the general grinding machine circuit and is expected to enter the vast machine tool & humanoid robot circuit:

The company is a leading domestic roller grinder. The main downstream includes steel/non-coloring/paper making, etc., and developed a sub-μ-grinding center in 2017 and entered the general grinding machine circuit. The company's sub-μ-grinding center can achieve precision grinding of parts with complex characteristics such as outer circles, internal circles, non-circles, threads, etc., and the performance is world-class. Among them, the core production process of screw guide rails, initial cylindrical grinding, finishing thread grinding, and guide rail grinding can all be covered by the company's sub-μ-grinding center products. Looking at the long term, with the localization of machine tools and the expansion of humanoid robots, demand for screw guides is expected to increase dramatically, and high-precision grinders will also benefit as key production equipment.

On October 8, Huachen Equipment announced that it signed an agreement with Best to provide BST with precision CNC linear guide grinder products and corresponding technical support within 1 year. The cooperation with Best can also verify the company's deep accumulation in the field of grinding machines. The company is expected to fully benefit from the expansion of demand for grinding machine equipment brought about by localization of machine tools and humanoid robots.

Profit forecast and investment rating: In the future, as the downstream manufacturing boom recovers and the company's production capacity is released, we expect the company's net profit to be 1.50 (original value 1.59) /1.80 (original value 1.95) /217 billion yuan respectively. The current stock price corresponds to dynamic PE of 36/30/25 times, respectively, to maintain the “increase” rating.

Risk warning: raw material prices fluctuate, manufacturing recovery falls short of expectations, industry competition intensifies