1Q24 results are in line with our expectations

The company announced 1Q24 results: revenue of 1,766 billion yuan, +7.3% year over year; net profit to mother of 400 million yuan, +28.7% year over year. The results are in line with our expectations.

Development trends

The mold business has benefited from the expansion of tire production, and the large parts and machine tool business is also doing well. 1) Tire mold: Benefiting from the expansion of overseas production by domestic tire manufacturers, we estimate that the 1Q24 mold business revenue growth rate may be double digits; 2) Large components: wind power parts are compensated by volume, and the share of gas turbines continues to rise (we estimate or more than 30%), and we estimate that 1Q24 large parts business revenue is basically flat; 3) CNC machine tools: We estimate that the 1Q24 machine tool business continued to grow rapidly despite the small scale in the same period last year. Looking at the year, the feedback was good after the March Shanghai Machine Tool Show, and there was also a difference in the quarterly indirect single delivery pace and sales scale for subsequent quarters. Further improvement is expected.

Under the influence of raw materials+exchange rate+product structure+manpower efficiency, gross margin increased year-on-year and declined slightly month-on-month. 1Q24's gross profit margin was 35.5%, +4.4ppt year over year, and -0.9ppt month-on-month. We estimate that they will all benefit from raw material prices+exchange rate depreciation+improved labor efficiency. The gross margin of molds and large components all increased year-on-year, but the gross margin of large components may increase even more due to the higher share of raw materials and the increase in the share of combustion engines.

The sales/management expense ratio increased slightly, and the financial expense ratio was reduced due to exchange earnings. 1Q24 The company's sales/management/financial expense ratios were 1.5%/8.7%/-0.3%, respectively, compared to +0.15/+1.35/ -1.31ppt, respectively. The company's overall expense ratio control was good. The company's quarterly report indicated that the increase in exchange earnings due to exchange rate changes led to a significant reduction in financial expenses compared to the same period last year. 1Q24 net margin was 22.6%, +3.76ppt.

Contract debt has increased, and made-to-order production continues to be strong. The company's contract debt at the end of 1Q24 was 177 million yuan, compared to +65 billion yuan at the beginning of the year. The company's quarterly report indicated that it was mainly due to an increase in pre-received payment at the end of the reporting period. We judge that the company is currently taking orders and is strong, which is expected to support the release of subsequent performance.

I am optimistic that the main business boom will continue, and high-end CNC machine tools will continue to contribute to the increase in performance. Domestic tire manufacturers have continued to expand production overseas in 24 years, and gas turbines have continued to be booming. At the same time, the company aims to develop and sell high-end CNC machine tools such as 5-axis and multi-axis composite, and machine tool production capacity continues to expand. Last year, machine tool companies (including vulcanizers) achieved marginal profit. We believe this year is expected to increase sales scale and profitability and contribute to performance growth.

Profit forecasting and valuation

Due to the continued boom in the mold business, we raised our 2024/2025 net profit by 4.1%/4.2% to 1,846 billion yuan/2,058 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 17.5x/15.7x. Maintaining an outperforming industry rating, but due to the upward trend in the industry valuation center, we raised our target price by 12.5% to 45.00 yuan, which corresponds to 19.5 times the 2024 price-earnings ratio and 17.5 times the 2025 price-earnings ratio. There is 11.5% room for growth compared to the current stock price.

risks

Downstream market demand is lower than expected, raw material prices are rising, and there is a risk of exchange rate fluctuations.