The company's recent situation
The company announced on June 28 that it intends to establish a holding subsidiary, Zhuzhou Okeyi New Energy Co., Ltd., to invest in the construction of a 10 billion meter tungsten wire production line project. We review and update the company's recent developments as follows:
reviews
The layout of the tungsten industry chain was extended and entered the new energy industry. The company plans to establish a holding subsidiary, Zhuzhou Oukeyi New Energy Co., Ltd. (hereinafter referred to as Okeyi New Energy), to invest in the construction of a 10 billion meter tungsten wire production line project, with a total investment of 0.145 billion yuan, which mainly produces fine cut tungsten wire for the photovoltaic, semiconductor and other industries. Diamond wire, which is based on tungsten wire, has the advantages of high strength, low wire consumption, and fine wire diameter, etc., and is suitable for high-end application scenarios in the new materials industry. We expect that this project may bring about 0.3 billion yuan in long-term revenue flexibility. The target company has a registered capital of 50 million yuan, of which the company invested 34 million yuan, accounting for 68% of the registered capital; Zhuzhou Oudong Investment Partnership (limited partnership) invested 16 million yuan, accounting for 32% of the registered capital. We believe this move marks the company's expansion into the new energy industry and vertical integration into the tungsten products industry chain.
Okeyi recently issued a price increase letter, demonstrating its determination to stabilize profitability. Following the publication of a full series of price increase letters in January, the company issued another price increase letter at the end of June 2024. Starting July 1, the price of some tools was raised by 5-10%. We believe that this price increase: 1) helps the company to shift the price increase pressure on raw materials and ensure stable profitability; 2) reflects the company's determination to upgrade its high-end product line.
Overseas markets have a key layout, and flexibility can be expected. The company is deeply involved in overseas markets and has previously established a good foundation in the Asian region. This year, it has focused on the European and American markets. It has set up subsidiaries in Germany to cover the European region, and is speeding up authorized brand stores in North America, South America and other regions. We expect that the share of overseas revenue for CNC blades may continue to rise to 30% this year. Furthermore, replication channels such as bars and overall tools can be expected to be flexible overseas.
Profit forecasting and valuation
Although the company's new business curve layout is improving, considering that the manufacturing boom since this year has fallen short of expectations, we lowered our 2024-2025 profit forecast by 12.5%/23.9% to 0.19/0.22 billion yuan. The current stock price corresponds to 2024-2025 P/E 16/13x, respectively. Considering the downward shift in the sector's valuation center, we lowered our target price by 16.7% to 25 yuan, corresponding to 2024-2025 P/E 21/18x, respectively. The current increase space is 35.9%. Considering the current low valuation level, we maintained a “outperforming industry” rating.
risks
The promotion of new products fell short of expectations, and the overseas layout fell short of expectations.