Revenue growth was impressive in '23, and overall dragged down the overall gross profit margin. According to the company's 2023 annual report, the company achieved annual operating income of 794 million yuan, +32.02% year on year; realized net profit of 158 million yuan, -4.85% year over year; and realized net profit without return to mother of 153 million yuan, -3.20% year on year.
The company's comprehensive gross profit margin in 2023 was 45.47%, -3.38pct year on year, mainly because the overall tool production capacity is in the climbing stage, the fixed cost amount is large, and the revenue scale has not yet been fully released. The gross margin of the complete tool product is only 2.81%, dragging down the comprehensive gross margin level. In the future, as the total tool production capacity climbs, the company's gross margin is expected to recover. In the context of impressive revenue growth, the reason for the year-on-year decline in net profit to mother was that the company implemented equity incentive payments of 0.28 million yuan, plus interest expenses on convertible bonds of 0.27 million yuan during the reporting period. Increased expenses lowered profit levels.
24Q1 revenue continued to grow, awaiting the release of full tool production capacity to repair gross profit levels. According to the company's 2024 quarterly report, the company achieved operating income of 170 million yuan in the first quarter, +13.24% year on year; realized net profit attributable to mother of 0.17 million yuan, -28.69% year on year; realized net profit after deduction of 16 million yuan, -26.06% year on year. 24Q1 revenue continued the growth trend in 2023, but the overall production capacity climbing process is not over yet. Operating costs were +30.49% higher than the revenue growth rate, and gross margin was under pressure of -8.08pct year on year. The marginal improvement in gross margin still needs to wait for full-scale production capacity to be released.
The downstream layout is extensive, and R&D relies on imported tool application scenarios. At present, the company has covered many downstream scenarios including automobiles, rail transit, aerospace, molds, energy, general machinery, etc., but at present, China's aerospace, military, and automobile engine sectors still rely on imported tools. In recent years, the company has increased R&D investment to focus on cutting difficult materials in aerospace and other fields, and it is expected that in the future it will further replace imports in the field of high-end cutting tools.
Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be RMB 225/3.01/412 million, respectively. Considering the total production capacity release and repair gross profit margin, the company was given a PE valuation of 25 times in 2024, corresponding to a reasonable value of 90.83 yuan per share, maintaining a “buy” rating.
Risk warning. Macroeconomic risks, overall production expansion falls short of expectations, and industry competition exacerbates risks.