Increased market development capacity and good revenue growth

Revenue increased in the first quarter of 2024, and gross margin declined. Take a look at it specifically:

(1) Revenue side: In the first quarter of 2024, the company achieved operating income of 0.35 billion yuan, +35.4% year on year; net profit to mother 0.051 billion yuan, +27.0% year on year; net profit after deducting non-return to mother 0.048 billion yuan, +41.3% year over year. The main reason for the increase in operating income was that during the reporting period, the company increased its market development efforts and promoted the continuous growth of revenue.

(2) Expense side: The company's expense ratio for the first quarter of 2024 was 10.1%, a year-on-year decrease of 0.5 pct. Looking at the breakdown, the company's sales/management/R&D/finance expense ratios for the first quarter of 2024 were 2.1%/3.4%/4.4%/0.2%, respectively, a year-on-year change of -0.3/-0.3/+0.1/-0.1pct. The increase in R&D expenses is mainly due to the company's emphasis on technology development and continuous increase in R&D investment.

(3) Profit side: The overall gross margin for the first quarter of 2024 was 25.1%, a year-on-year decrease of 1.9 pct.

Seize demand and unleash opportunities, and we can expect steady, high-quality development.

The Anhui plant is expected to be put into operation in 2025. New production capacity is about to be released, and the new plant will focus on the higher-margin bearing sector. By the end of 2023, the company's production capacity had reached 0.16 million tons (Suzhou factory), which is in the first tier of the domestic industry. With the commissioning of the company's new plant and the smooth implementation of the fund-raising project, the company's production capacity is steadily expanding, and 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 0.04 million tons of production capacity in the year it is put into operation, and the future production capacity is expected to reach 0.15 million tons after climbing, providing a solid production capacity guarantee for the company's long-term development. In terms of production capacity structure, products are mainly automobiles, bearings, and high-end manufacturing. It is expected that the company will continuously adjust the product structure according to market and customer needs, continue to enrich the product line, increase the proportion of high-margin products, and open up new business growth points.

Profit forecasting

The company's revenue for 2024-2026 is 1.54, 1.9, and 2.35 billion yuan, respectively, and EPS is 2.80, 3.47, and 4.30 yuan, respectively. The current stock price corresponds to PE 13.2, 10.7, and 8.6 times, respectively. Considering the company's forward-looking layout in the field of high-end bearings, a “buy” investment rating is given.

Risk warning

(1) There is a risk of large fluctuations in raw material prices; (2) overseas export business falls short of expectations; (3) the construction progress of the project falls short of expectations.