A supplier of new materials and solutions for precision stamping. The application field continues to expand from auto parts to bearings, hydrogen energy, and robots. It was founded in 2005 and listed on the Shenzhen Stock Exchange on June 6, 2022. It is a high-tech enterprise that produces customized fine blanking materials. The company mainly uses hot-rolled wide-width special steel blanks as raw materials to achieve special specifications, specific thickness accuracy, surface quality and special mechanical properties through pickling, longitudinal shear, precision cold rolling and heat treatment processes to meet the customized needs of downstream customers. The company's main products include fine blanking materials for automotive parts, covering structural parts and functional parts such as automobile safety systems, seat systems, interior systems and power systems; the company also continues to focus on high-end and fine fields such as bearings, hydrogen energy, and robots. By the end of 2023, the company's production capacity/output/sales volume of fine blanking materials was 16/16.2/161,000 tons, respectively, with a capacity utilization rate of 101.5% and a production and sales rate of 98.9%, making it a leading domestic enterprise.

Auto parts are the main source of revenue, and the contribution of fine blanking materials for industrial and other uses is growing steadily. In 2023, the company's revenue for automotive parts/industrial/other fine blanking materials was 1,133/133/16 million yuan respectively, and YoY was 10.46%/12.79%/14.24%, accounting for 83.75%/9.81%/1.17%, respectively. Revenue from industrial and other fine blanking materials grew rapidly, and the share also increased steadily. Benefiting from customer expansion and application field expansion, the company's revenue and profit grew rapidly. The revenue for 2021-2023 was 10.63/12.12/1,353 billion yuan, YoY was 49.3%/14.0%/11.7%, respectively; net profit to mother was 1.21/1.41/201 million yuan, and YoY was 76.8%/17.0%/42.0%, respectively.

2024 Q1 revenue and net profit attributable to mother were $350/51 million, respectively, and YoY was 35.4%/27.0%, respectively, and maintained a high growth rate. Currently, the company is speeding up the layout of materials such as bearings and robots, and it is expected to bring new performance growth points to the company in the future.

Domestic substitution of fine blanking materials is accelerating, steadily entering the Japanese supply chain, the fine blanking materials market space is broad, and technological breakthroughs are accelerating localized substitution. According to the company's announcement, the current consumption of fine blanking materials for bicycles abroad is about 25 kg, and there is still plenty of room for improvement domestically; considering the material loss rate during the stamping process, the global demand for fine blanking materials is about 3 million tons, and the domestic demand is 70-1 million tons. Considering the potential to increase domestic bicycle usage and the room for overseas market expansion, we think the company's expansion in the auto parts field is worth looking forward to. The company closely follows the trend of localization of high-end precision stamping materials. Through independent research and development and technological innovation, the company has successfully achieved domestic substitution of materials for key components (16MnCr5, 42CrMo4, C45E, etc.), further reducing production costs and effectively guaranteeing the timeliness of delivery and service. As the industry's requirements for material performance, accuracy and quality continue to improve, the company's customized precision stamping products will become a key competitive advantage to meet market needs.

Collaborate with auto parts giants to deepen cooperation and break into the Japanese supply chain to open up room for growth. The company is committed to cooperating with world-renowned auto parts companies, and has established long-term and stable cooperative relationships with many well-known domestic and foreign auto parts suppliers, including Mubel and Magna, and has formed a strong customer matrix. Through the world's leading Tier 1, the company's products are widely used in well-known automobile brands such as BMW, Audi, Jaguar Land Rover, Toyota, etc. According to global sales data, Japanese automobile sales account for nearly 30% of global automobile sales. It is a long-term leader in the global automobile industry, and the company has gradually entered the Japanese automaker supplier system. The company's Anhui plant is expected to release 40,000 tons of production capacity in 2025 to support the large-scale release of materials for Japanese cars.

Entering the field of bearings and humanoid robots to help expand the “high-end manufacturing” market

The scale of bearing materials is considerable, and there is plenty of room for domestic replacement. The company is actively expanding the field of high-end bearing stamping materials. The main application areas of the product are bearing cages and plane bearings. According to Grand View Research, the global bearing market reached US$121 billion in 2023, and is expected to reach US$226.6 billion in 2030, with a CAGR of around 9% in 2024-2030. According to estimates that the size of bearing cages accounts for about 5% of the bearing market space, the global market space for bearing cages is US$6.05 billion in 2023, and is expected to reach US$11.33 billion in 2030. The company has reached cooperation with domestic and foreign head bearing manufacturers to enter the field of precision bearing materials, and is expected to achieve leapfrog development from 1 to 10.

Entered the field of humanoid robots and developed flexible wheel materials for harmonic speed reducers. The harmonic reducer is mainly composed of a flexible wheel, a rigid wheel, and a wave generator. The materials used in the flexible wheel and the rigid wheel determine its performance and service life. According to Green Harmonic Annual Report data, the material cost of harmonic reducers accounts for 30% to 40% of the total cost.

Currently, the flexible wheel materials for domestic and foreign harmonic reducers are basically 40Cr alloy steel, including 40CrMonia, 40CrMonia, 30CrMonia, 38Cr2Mo2VA, etc.; due to high purification technology and few material impurities, domestic harmonic reducer manufacturers currently rely on imports for soft wheel materials. The company combines its advantages into a new field of precision blanking materials for humanoid robots. Various projects such as flexible wheel materials and bearing materials for harmonic reducers are under research, and it is expected to promote domestic replacement of key materials for harmonic reducers.

The full participation of the actual controller in the fixed increase shows confidence, and the steady release of production capacity brings flexibility in performance

It raised more than 100 million yuan in private offerings from actual controllers, demonstrating confidence in growth. In 2023, the company raised capital from Hesheng Holdings (100% owned by the actual controller, Mr. Qian Hesheng). The issue price was 29.47 yuan/share, and the number of shares issued was 3.637 million shares. A total of 107.172 million yuan was raised to supplement working capital.

After the issuance was completed, Mr. Qian Hesheng directly and indirectly held 31.11% of the company's shares.

The Anhui plant is expected to be put into operation in 2025, laying the foundation for growth. With the commissioning of the company's new plant and the smooth implementation of the fund-raising project, the company's production capacity has been steadily expanding. By the end of 2023, the production capacity had reached 160,000 tons (Suzhou factory). It is in the first tier of the domestic industry. The production capacity of the Suzhou plant will be further optimized in 2024. The company expects to complete the construction of the Anhui plant by the end of 2024 and put into operation in 2025. It is expected to release 40,000 tons of production capacity in the year it is put into operation, and the future production capacity is expected to reach 150,000 tons after climbing. In terms of production capacity structure, the products are mainly automobiles, bearings, and high-end manufacturing. Half of them are expected to be high-priced and high-profit bearing products.

Profit forecasting

We expect the company's net profit to be 222/275/340 million yuan in 2024-2026, and the CAGR for the next 3 years will be 19.2%; the PE corresponding to the current stock price will be 14.1/11.4/9.2 times, respectively. Considering the company's leading position in the field of fine blanking materials, the forward-looking layout in the field of high-end bearings and robot materials was given a “buy” rating for the first time.

Risk warning

(1) High risk of raw material price fluctuations; (2) Overseas export business falls short of expectations; (3) Project construction progress falls short of expectations