Once again, insufficient production capacity has become a bottleneck for the development of Lvtian Machinery (605259.SH). This time, Lvtian Machinery is prepared to expand the production capacity of general dynamic machinery, with a total investment amount close to the sum of net income attributable to shareholders since the company went public.

Tonight, Lvtian Machinery announced that it plans to build a new project with an annual output of 1.4 million units of general dynamic mechanical products. The total investment is expected to be 556 million yuan. The main products are generators, water pump units and engines, and the project construction period is set at 24 months.

It is worth mentioning that the total investment of 556 million yuan for this project is close to the sum of net income attributable to shareholders of Lvtian Machinery in the past three years, and it is also the largest investment since the company went public in June 2021.

Financial data shows that from 2021 to 2023, the company will achieve net income attributable to shareholders of 159 million yuan, 215 million yuan and 180 million yuan respectively, with a total of 554 million yuan. As of the end of the first quarter of this year, the company's monetary funds were 1.008 billion yuan, and the funds on hand were relatively abundant.

When talking about the necessity of project construction, Lvtian Machinery said that in recent years, the production and sales of the company's general dynamic machinery business have been increasing year by year. At present, the company's production capacity cannot meet the increasingly growing demand for orders, and insufficient production capacity has become a bottleneck for the company's development.

An official from Lvtian Machinery told Cailian Press that in the past two years, the production line of the company's general dynamic mechanical products has been producing at overload, and due to the limitations of the production site and production capacity, the company can only make flexible adjustments by working overtime and increasing some temporary production lines in order to catch up with orders.

Lvtian Machinery's main business is R&D, production and sales of general dynamic machinery and high-pressure cleaning machine products. According to the announcement, the current production capacity of Lvtian Machinery's general dynamic machinery business is 800,000 units/year. This means that after 2 years, the production capacity of Lvtian Machinery's general dynamic machinery products will reach 2.2 million units/year, nearly three times the existing production capacity.

Cailian Press reporters have found from the announcement that in the past two years, the utilization rate of Lvtian Machinery's general dynamic machinery production capacity has been on the rise. In 2023, the company's production and sales of this product will be 943,000 units and 941,400 units respectively, an increase of 4.88% and 4.18% respectively year-on-year, and the annual production capacity utilization rate is about 117.88%.

It is worth noting that although the production and sales of Lvtian Machinery's general dynamic machinery products will increase in 2023, the company's revenue and gross profit margin are declining. Financial data shows that last year, the revenue of the company's general dynamic machinery products was RMB 887 million, down 3.58% year-on-year, and the gross profit margin was 18.55%, down 0.22 percentage points year-on-year.

In 2022, the revenue of Lvtian Machinery's general dynamic mechanical products reached RMB 910 million, a year-on-year increase of 42.59%. Its gross profit margin also increased by 3.3 percentage points year-on-year, reaching 18.77%. It is reported that the main reason for the surge in revenue of the company's general dynamic mechanical products that year was the growth of the export sales of RBOB gasoline generators.

In terms of performance, Lvtian Machinery increased its revenue but not its net income in the first quarter of this year. The company achieved revenue of RMB 425 million, a year-on-year increase of 0.28%, and net income attributable to shareholders was RMB 36.72 million, a year-on-year decrease of 28.45%. Lvtian Machinery stated in the announcement that this investment project has a good profit prospect and will drive revenue and profit growth of the company's main business.

Related industry insiders told Cailian Press reporters that the core of expanding production is continuous orders, and the industry as a whole must perform well. At present, the competition in the machinery industry in China is relatively fierce, but the gross profit margin of the overseas market will be higher. Thanks to the development of overseas markets, the machinery industry has generally maintained a good trend in recent years, but the growth will not be too great.

"We are doing first-level distribution, not selling directly to end consumers. The company's current customers are mostly Chinese, but the end consumers are not necessarily in China," said the aforementioned Lvtian Machinery insider. According to data, Lvtian Machinery's overseas revenue accounted for more than 70% in the past three years.

A research report released by China Post Securities on April 9 shows that from the perspective of the global general machinery market, the annual demand for general dynamic mechanical products is estimated to exceed 60 million units, and its main markets are developed regions such as Europe and North America. The market demand is relatively stable, and its consumption accounts for about 50% of the global market, mainly for generators and garden machinery.