Core views

In 2023, the company sold about 87.3717 million CNC blades, with an average price of 6.59 yuan/piece; compared with the average price of 6.49 yuan/piece in 2022, there was a slight increase; the growth of hard alloy products was steady. New production capacity is still climbing. The gross margin of superimposed direct sales projects is low, affecting the overall gross profit margin, which is expected to improve in 2024.

Looking ahead to 2024, benefiting from the recovery of the domestic manufacturing industry and the continued advancement of domestic substitution, sales of high-end products will drive increased profitability, the promotion of the turnkey model will continue to expand in the automotive, aerospace and other fields, and overseas channel expansion will also open up a wider market, and overall operations are expected to improve.

occurrences

In 2023, the company achieved revenue of 1,026 billion yuan, a year-on-year decrease of 2.73%, net profit of 166 million yuan, a year-on-year decrease of 31.43%, after deducting non-net profit of 130 million yuan, a year-on-year decrease of 42.33%; in Q4 alone, it achieved revenue of 222 million yuan, a year-on-year decrease of 13.27%, and net profit of 0.06 billion yuan, a year-on-year decrease of 102.26%;

2024Q1 achieved revenue of 264 million yuan, a year-on-year decrease of 7.03%, net profit to mother of 30 million yuan, a year-on-year decrease of 49.66%, after deducting non-net profit of 0.13 million yuan, a year-on-year decrease of 72.43%.

Brief review

The average price of CNC blades increased, and tungsten carbide products grew steadily

The average price of CNC tools has increased slightly. In 2023, the company's CNC tool products achieved revenue of 576 million yuan, down 9.98% year on year, with sales volume of 887.317 million pieces, with an average price of 6.59 yuan/piece; compared with 99.03 million pieces in 2022, the average price was a slight increase of 6.49 yuan/piece. We believe this is related to the gradual increase in production and sales of the company's high-end blade production capacity.

Hard alloy products are growing steadily. In 2023, the company's hard alloy products achieved revenue of 445 million yuan, an increase of 9.98% over the previous year. The company's tungsten carbide products are mainly serrated blades, bars and discs. Serrated blades are the largest hard alloy products produced by the company, and their technology and market position are at the forefront of the industry segment.

By region, overseas revenue is growing rapidly. Domestic and overseas market revenue was 884 million yuan and 140 million yuan respectively, -6.09% and +31.44% year-on-year respectively. Overseas market revenue growth was relatively rapid. At the same time, the gross margin of the overseas market is 38.64%, which is 10.79pct higher than 27.85% of the domestic market. We believe this is related to the better overseas competitive environment and the better overall performance of export products. It is expected that overseas revenue will grow faster in 2024.

Poor capacity utilization and low profit margins for direct sales projects affect overall profit performance. It is expected that in 2024, new production capacity will continue to rise. Combined, the gross margin of direct sales projects is low, affecting the overall gross profit margin. In 2023, the company achieved a gross profit margin of 29.32%, a year-on-year decline of 7.43pct; in 2024Q1, the company achieved a gross profit margin of 25.09%, a year-on-year decline of 7.14pct, mainly due to: ① Due to the influence of the demand side, the CNC blade business revenue declined slightly, increasing the share of hard alloy products with a gross margin of only 14.93%; ② In 2023, the gross margin of direct sales products fell 9.19pct, lowering the overall gross profit margin; ③ The capacity utilization rate of products including high-end blades and cutters is still climbing, making fixed costs difficult to amortize. The factors are Improvements are expected in 2024.

The turnkey business has broken through major customers+overseas market expansion. The company's operational improvements are worth looking forward to receiving BMW crankshaft processing projects, and the turnkey model has entered the promotion and replication stage. In 2023, the company accelerated the development of turnkey tool solutions for key customers and key scenarios, obtained a BMW crankshaft processing project, established a benchmark case for tool processing solutions in the automotive industry chain, formed a standard solution system for automotive, 3C, aerospace, wind power, medical devices, etc., and entered the batch promotion and replication stage.

Vigorously promote export business and improve the global market layout. In 2023, the company seized export opportunities and increased overseas development efforts. Overseas brand agents continued to increase, and the overseas layout was further improved. Overseas sales revenue was 140 million yuan, of which export revenue of CNC tool products reached 111 million yuan, and exports of CNC tool products accounted for 19.27% of CNC tool revenue. The sales volume of the company's overseas brand stores increased rapidly. Overseas sales spread across nearly 60 countries. The average export unit price of CNC tool products was 10.10 yuan, and some overseas customers in Asia, Europe and the United States doubled.

Investment advice

Okeyi is a leading domestic CNC tool company with a complete range of products and leading technology. Looking ahead to 2024, benefiting from the recovery of the domestic manufacturing industry and the continued advancement of domestic substitution, sales of high-end products will drive increased profitability, the promotion of the turnkey model will continue to expand in the automotive, aerospace and other fields, and overseas channel expansion will also open up a wider market, and overall operations are expected to improve.

The company is expected to achieve net profit attributable to mother in 2024-2026 of 2.02, 2.71 million yuan, and 351 million yuan, respectively, with year-on-year increases of 21.41%, 34.64%, and 29.23%, respectively. Corresponding PE is 20x, 15x, and 12x, respectively, maintaining a “buy” rating.

Risk analysis

(1) Risk of fluctuations in raw material prices: Tungsten carbide powder and cobalt powder account for a large share of raw material costs, and prices are affected by many factors such as macroeconomic conditions, supply and demand conditions. If prices fluctuate greatly and cannot be transmitted to the downstream in a timely and effective manner, it may adversely affect the company's profitability.

(2) Production capacity expansion falls short of expected risk: The capacity expansion of IPOs and fixed increase projects remains to be seen. If the progress of production capacity expansion or climbing falls short of expectations, it will have an impact on the company's performance growth rate.

(3) The recovery of the manufacturing industry falls short of the expected risk: The tool has the properties of industrial consumables, and its downstream covers many segments of the manufacturing industry, which is closely related to the prosperity of the manufacturing industry. If the production situation in the downstream manufacturing industry fluctuates, it will have an impact on product demand.

(4) Risk of increased market competition: Currently, the industry is in a period of expansion. Many enterprises in the industry are in the phase of capacity expansion, and investment in product R&D has been increased, and product competitiveness is constantly increasing. If market competition intensifies in the future, the company may face greater competitive pressure.