With the rapid development of technology, competition among countries has gradually shifted from traditional resource-based competition to competition in technological innovation strength. As the core carrier of technological innovation, the importance of intelligent manufacturing is increasing day by day. LK Technology, as one of the representative enterprises of intelligent manufacturing in the Hong Kong stock market, is a good observation sample.
On June 28, LK Technology released its latest annual performance report.
During the period, the company achieved revenue of HKD 5.837 billion, which was flat compared with the same period last year; the net profit was HKD 518 million, but it is worth mentioning that the net profit of the company in the second half of the fiscal year increased by 52.3% month-on-month, demonstrating strong profitability rebound.
Overall, LK Technology has overcome the negative impact of the short-term weakening of downstream demand in the first half of the year and returned to the path of positive growth.
1. Overseas market depicts a growth curve.
First of all, what caught my attention was that LK Technology's overseas market revenue reached HKD 1.336 billion, an increase of 21.9% year-on-year. This is particularly important in the context of domestic enterprises seeking new sources of growth by going global.
In recent years, in an environment of weak domestic demand and intensifying competition, it is necessary for various industries to seek new growth momentum in overseas markets to enhance their own profitability.
What's more, in the past forty years of reform and opening up, China has undoubtedly been the core beneficiary of globalization dividends and has the most complete industrial system in the world. Its strong supply chain capacity has made 'good quality at a low price' a hallmark of Chinese brands, which has endowed Chinese enterprises with the basic ability to go global and expand.
Overall, in this wave of going global, China's manufacturing industry has both the demand for breaking through passively and the reasons for actively seeking growth opportunities. In accordance with the general commercial rules, those leading enterprises in industries that actively seek change are more likely to have their products and business models validated by the domestic market and more easily gain recognition in the complex and changing overseas market.
Focusing on LK Technology itself, it is undoubtedly a leader in the domestic die-casting machine and injection molding machine industry and has also been actively implementing a global strategy in recent years.
At present, LK Technology has more than 60 sales offices and service centers covering more than 20 countries around the world, realizing multi-point flowering.
However, going global is not easy. Many barriers, such as market demand, policies and legal compliance, and regional customer relationships, need to be overcome by enterprises to prevent the occurrence of 'southern oranges and northern tangerines' situations.
To this end, LK Technology continues to increase local teams, set up production bases and sales and service centers in strategic regions such as Mexico, India, North America, and add strategic research and development centers in Europe to fully absorb local talent, respond to customer needs and market changes more quickly, and enhance its brand image.
2. Injection machine business has entered an upward period.
Looking at the business structure separately, the injection molding machine business was particularly impressive in the latest fiscal year. During the period, LK Technology's injection molding machine achieved revenue of HKD 1.425 billion, a year-on-year increase of 19.7%. It is not easy for this business to achieve good performance growth.
As we all know, as an important general equipment, injection molding machine is widely used in many industries such as plastics, automobiles, home appliances, and so on, which means that its economic performance is highly related to the prosperity of the manufacturing industry.
According to statistics from the National Bureau of Statistics, from April to December 2023, the purchasing managers' index (PMI) of the manufacturing industry was below 50% for most of the time, and only reached 50.2% in September. In the first two months of 2024, this data was also below 50%.
From this perspective, the overall downstream demand for injection molding machines was weak during the entire fiscal year, and LK Technology was able to achieve double-digit growth in such an environment, which was not easy.
Looking at the medium- to long-term, favorable policies are expected to bring better business opportunities for LK Technology. In March of this year, the 'Action Plan for Promoting Large-Scale Equipment Renewal and Consumer Goods Replacing Old with New' was launched. This decision aims to promote consumption, stimulate investment, increase advanced production capacity, and improve production efficiency.
As an important middle- and upper-stream industrial investment item represented by injection molding machines, before the new round of large-scale equipment renewal, investment in general equipment needs to be increased. In addition, in 2017, there was a large-scale update and upgrade of injection molding machines. According to the update cycle of 8-10 years, the update cycle of China's injection molding machine industry has arrived. The double driving forces of policy and industry are conducive to a significant increase in the demand for injection molding machines.
Moreover, from a global perspective, as an important exporter of injection molding machines, going abroad should become a focal point for China's injection molding machine industry to seek additional growth.
According to the data from Zhongyan Consultancy, the size of the domestic injection molding machine market in 2022 is 26.35 billion yuan. Meanwhile, according to Grand View Research, the global injection molding machine market will be approximately 110.8 billion yuan in 2022, and the size of the global injection molding machine market is expected to reach around 159.4 billion yuan by 2030. The importance of the overseas market is beyond doubt.
However, for a long time, the European and Japanese companies have occupied the high-end market of the injection molding machine industry, consuming most of the industry's profits.
Therefore, if companies want to obtain high-quality development while going abroad, it is essential to take proactive measures to transform and upgrade towards high-end operations. The bottom-line support still lies in the company's own strong technical strength.
Technical strength is precisely the confidence that LK Technology, as one of the top five injection molding machine manufacturers in China for a long time, has. To some extent, this can be proven by its continuous releases of new products.
For example, during the reporting period, LK Technology launched a 6000T super large two-plate injection molding machine, which is a customized product in the company's FA series. It has a super large capacity and a super long movement stroke, with a theoretical injection volume of 83KG. It is suitable for the production of super large and deep-cavity plastic products and has been widely recognized in overseas markets.
Moreover, LK has launched the fifth-generation precision injection molding machine PT-V, with full-range standard electric glue technology. Its power has been increased by 15%-25%, and molding cycle has been shortened by 10%-20%. LK also created a new fifth-generation PET electric special machine. It has high precision of motor control, good stability, high efficiency, and a qualifying rate of more than 95%. It has been achieved mass production and established a strategic cooperative relationship with well-known domestic leading companies. These highly competitive new products are important drivers for LK Technology to maintain its current customer base and constantly explore new markets in the future.
It is worth mentioning that the injection molding machine has a wide range of downstream applications, among which the auto industry, as an important high-end application scenario, is also the core customer portrait of LK Technology. In the 2024 fiscal year, the revenue in the auto industry increased by 12.6% YoY.
This is also conducive to LK Technology better carrying out its unique three-in-one cross-sales strategy, driving the high-end development of injection molding machine business through the synergy among the three main businesses of die-casting machines, injection molding machines, and CNC machining centers, and bringing higher-quality growth to the company in the future.
Third, the long-term growth trend of die-casting machines has great certainty.
From a business structure point of view, die-casting machines are the company's basic business. In the latest fiscal year, the revenue of LK Technology's die-casting machine business reached 4.244 billion Hong Kong dollars, accounting for 72.7% of the company's total revenue proportion.
As we all know, the improvement of die-casting machine prosperity depends on downstream companies' attention to integrated die-casting. Integrated die-casting greatly simplifies the original process of riveting, stamping, welding, and forging, and reduces the weight of components. It has become an indispensable aspect for downstream auto manufacturers to reduce costs and improve efficiency and benefited the entire industry chain.
Moreover, the die-casting machine is the most critical factor in the integrated die-casting industry.
According to data from Mordor Intelligence, the global die-casting machine market is expected to reach approximately 8.286 billion US dollars by 2024 and 11.214 billion US dollars by 2029, with a compound annual growth rate of 6.24% during the forecast period.
So, why can LK Technology occupy the leading position in this extensive field for a long time?
First of all, LK Technology has been widely recognized in the industry. It is reported that currently more than 90% of auto parts manufacturers are LK's customers.
Generally speaking, such highly complex equipment as die-casting machines requires professional technicians and experienced personnel to operate and maintain. Changing brands will face higher initial investment costs and may require retraining personnel to adapt to new equipment features. Thus, the customer stickiness of die-casting machines tends to be strong, and the scaled customer base brings LK Technology certainty for stable development.
Being widely recognized by the market is essentially due to the outstanding technical strength of the company. This is inseparable from the company's long-term emphasis on research and development. In the 2024 fiscal year, LK Technology's research and development investment increased by 58.3% YoY to 214 million Hong Kong dollars.
From the product structure point of view, die-casting machines with 1000 tons to 5000 tons of medium-to-large sizes contribute more than half of the revenue in the die-casting machine business sector. These products mainly serve as important components of new energy vehicles, such as the power battery system and shock tower.
If medium-to-large-sized die-casting machines build LK's current solid foundation, then super large die-casting machines open up its long-term growth ceiling.
In 2019, LK Tech was the first to break through the 6000-ton ultra-large tonnage die-casting machine, and then continuously launched 9000 tons, 12000 tons, 16000 tons, and 20000 tons, all of which were industry pioneers. In the trend of pursuing higher tonnage for more powerful cost reduction and efficiency improvement in integrated die-casting, LK Tech takes the lead in the super-large die-casting machine market and occupies the first market share.
It can be said that with the continuous increase of the penetration rate of new energy vehicles, the long-term growth certainty of LK Tech's die casting machine business will not change.
There are three key points of LK Tech currently exist.
From the perspective of long-term investment, the long-term development direction of the industry or enterprise is still crucial. Given LK Tech, I believe there are three key points.
Firstly, there is increased imagination for ultra-large tonnage die-casting machines.
Currently, the market has some concerns about LK Tech's continuous introduction of large-tonnage products. It is believed that large-tonnage die-casting machines may squeeze out small-tonnage machines, thereby reducing the sales volume of die-casting machines, and in turn, the large amount of research and development costs cannot ultimately be translated into performance growth.
However, I believe that this concern is unnecessary.
The larger the tonnage of the die-casting machine, the higher the proportion of profit margins. It is reported that the gross margin of super-large die-casting machines exceeds 50%. LK Tech is the absolute leader in super-large die-casting machines and has stronger bargaining power. The potential for profit improvement cannot be ignored.
More importantly, tonnage can increase for the manufacture of larger castings, which also means more application scenarios, such as LK Tech's groundbreaking! release of a new chassis application scenario in FY2024, which is the integrated molding of A00-class car chassis.
It is even possible that LK Tech's die-casting machines will not only be used in passenger vehicles, but also in other areas such as commercial vehicles, opening up more imagination space.
Secondly, it is the certainty of the new energy vehicle industry direction.
Since last year, under the background of the continuous deepening of the price war of new energy vehicles, the downstream capital expenditure reduction of car factories has caused performance fluctuations in upstream die-casting machine manufacturers. However, the short-term performance data are not ideal, and it does not affect the long-term positive direction of the industry.
It can be seen that the penetration rate of new energy vehicles is continuously increasing. According to the data of the Ministry of Industry and Information Technology, China's new energy vehicle penetration rate will reach 31.6% in 2023. According to data released by the National Joint Conference on Automobile Information in China, China's new energy vehicle retail penetration rate reached 50.39% in the first half of April 2024, setting a new historical record.
With many car companies such as Volkswagen, Toyota, Ford, Volvo, etc. clearly announcing the timetable for stopping the sale of fuel vehicles, the penetration rate of new energy vehicles will undoubtedly continue to have a lot of room for growth, and the demand for die-casting machines will also have exponential growth space.
This means that no matter how the downstream new energy vehicle manufacturers internal competition evolves, as long as the consensus of cost reduction and efficiency improvement remains unchanged, the trend of embracing integrated die-casting will not change. As a leader in die-casting machines, LK Tech will obtain most of the industry scale dividend growth.
Thirdly, there is an emotional warming.
In the past two years, the Hong Kong stock market has generally been under pressure. Until January of this year, the Hang Seng Index began to repair. After four months of consecutive shocks and rising, it has recently experienced some corrections, which has also caused some investors' concerns.
But in reality, many international large banks and excellent investors have increasingly positive views on Chinese assets in the future.
Goldman Sachs believes that China is introducing a series of supportive policies, which have provided clear bottom support for the stock market and boosted market confidence. At the same time, Liu Jinjin, chief China stock strategist at Goldman Sachs, and his team pointed out in their reports that the recent market correction is not surprising, but it provides investors with a better opportunity to enter the market.
The underlying logic of foreign investment's bullishness on domestic core assets is China's profound development potential, and many core enterprises have achieved considerable international status.
For companies like LK Tech, which has achieved a core position in the field of die-casting and injection molding machines, the high certainty of future growth is more likely to attract long-term funds.
V. Conclusion
Overall, the performance data of LK Tech releases improvement signals, and the resilient injection molding machine business and highly certain die-casting machine business bring sufficient momentum for LK Tech's long-term value center improvement. Looking ahead, with the popularization of new energy vehicles and the continuous recovery of the manufacturing industry, LK Tech will continue to benefit from bullish policies and market demand growth. In addition, the deepening international layout will also bring new growth opportunities for the company.
Looking ahead, with the popularization of new energy autos and the continuous recovery of the manufacturing industry, LK Tech will continue to benefit from bullish policies and market demand growth. In addition, the deepening international layout will also bring new growth opportunities for the company.