Incidents:
Baichu Electronics released its 2024 quarterly report. 2024Q1 achieved revenue of 381 million yuan, +40.31% year over year; net profit to mother of 194 million yuan, +46.55% year over year; net profit after deducting non-return to mother of 183 million yuan, +50.43% year over year.
Core views:
Medium and low power grew steadily, and high power continued to be released. The 2024Q1 company achieved a growth rate of 40.31% on the revenue side and a growth rate of 46.55% on the profit side. The main reason was that the company continued to explore new markets and further optimize the product structure. The number of orders for the laser processing control system business continued to grow, which led to a large increase in orders for the intelligent cutting head business. Looking at the split products, according to the company's public investor communication records:
1) Medium and low power control systems have benefited from going overseas, and sales have grown steadily: the company mainly cooperates with the “Group Outbound Plan” of domestic laser equipment manufacturers to go overseas indirectly, benefiting from the high popularity of lasers going overseas, and the share of overseas demand for medium and low power continues to increase;
2) High power penetration rate+increased market share, and the growth rate is higher: future growth comes from: ① domestic replacement of foreign brands in the high-power sector; ② upgrading and replacement of traditional processing methods after continuous breakthroughs in high-power and ultra-high power technology; ③ increase in overseas demand.
The high growth momentum of high-power systems and cutting heads is expected to continue.
Profitability continues to increase, and expenses are well controlled.
2024Q1's gross margin was 79.31%, +0.77pct year on year; net margin was 53.75%, +2.53 pct year on year. Profitability continues to increase: ① As the company's revenue volume expands, the scale effect is evident; ② 2024Q1 confirmed other revenue (government subsidies) of 121 million yuan, an increase of 19 million yuan over the previous year. On the cost side, the 2024Q1 company's cost rate for the period was 24.90%, +2.72pct year on year, of which the sales expense ratio was 6.27%, +1.23pct year on year. The company focused on building a sales team and increased the size of sales staff; the management expense ratio was 5.31%, -0.81 pct year on year; the R&D cost rate was 15.78%, +0.87pct year on year, and the company continued to increase R&D investment; the financial expense ratio was -2.45%, up 1.44pct year on year.
Strengthen cross-sector R&D capacity building and continue to consolidate competitive advantages.
1) Cutting head: According to the company's official WeChat account, the company launched a new cutting head product for the medium and low power sector (≤4 kW), which is expected to further consolidate the company's position in the medium and low power market through the product portfolio advantage of “software and hardware collaboration”, while also providing product value increases and customer stickiness.
2) Intelligent welding: According to the company's annual report and public investor exchange records, in the intelligent welding business, the company uses the provision of complete software solutions as the main form of business cooperation to continuously improve model analysis technology, quickly extract welds and analyze welding positions; develop process matching functions and process libraries. After model analysis is completed, the software can automatically match the corresponding welding process, further reduce user setup time and operation difficulty; improve the development of process functions in the field of steel structures; add various swing movements such as L type, triangle, crescent, etc., and develop functions such as arc tracking to match them. We continue to be optimistic that new welding products will open up a new growth curve for the company.
3) Precision processing: Based on the horizontal expansion of the field of industrial automation, the company continues to lay out the field of precision machining. According to the company's annual report, the company develops a high-performance galvanometer control system with integrated drive products and visual positioning modules to provide complete solutions for Topcon battery laser processing; reserve technical solutions for BC battery laser graphics and perovskite battery laser processes; reserve technical solutions for cylindrical battery laser welding production lines; and upgrade matte glass processing efficiency and processing technology. It is expected to promote the import substitution of high-precision motion control systems in high-end domestic equipment.
Investment advice:
The company's revenue from 2024 to 2026 is estimated to be 18.90/25.21/3.31 billion yuan, respectively, with growth rates of 34.30%, 33.39%, 32.16%, and net profit of 10.06/13.46/1,773 billion yuan respectively, with growth rates of 38.03%, 33.79%, and 31.69% for PE, 48X/36X/27X respectively, maintaining a “buy-A” investment rating. The target price for 6 months is 370.44 yuan, corresponding to 54X in 2024 Dynamic price-earnings ratio.
Risk warning: The manufacturing boom is lower than expected, there is a risk that the market in the medium and low power sector will shrink, the localization process of the high-power market falls short of expectations or the company's development in this field falls short of expectations, the company's progress in developing and expanding new products falls short of expectations, and the penetration rate of welding robots falls short of expectations.