summary

Terry Convertible was listed on July 24 (Wednesday). The scale is 0.338 billion yuan, and the conversion rating is AA-.

Underlying stock analysis

The issuer Terry Machinery is a leading domestic injection molding machine company. The downstream is mainly used in the fields of auto parts, logistics packaging, home appliances, 3C, and building materials. The company is a national “specialized, sophisticated and new” and “little giant” enterprise. According to the results of the selection of superior enterprises in China's plastic injection molding machine industry in 2023 issued by the China Plastics Machinery Industry Association, the company ranked fourth in the industry in terms of revenue and net profit in 2022. In 2022, the company began entering the field of integrated die-casting, focusing on providing integrated die-casting solutions for new energy vehicles.

According to the company's 2023 annual report, injection molding machines, parts and other labor and other businesses accounted for 97.91%, 2.08%, and 0.01% of the company's revenue; of gross profit, injection molding machines, accessories and other labor and other businesses accounted for 97.54%, 2.45%, and 0.01%, respectively. The company's 2024 quarterly report showed a consolidated gross margin of 29.43%. The company's revenue scale has grown steadily in recent years. The company's revenue CAGR for 2019-2023 was 5.67%, and has declined since 2023 due to downstream demand. At the same time, the company's net profit CAGR for 2019-2023 was -7.02%. The company's raw material prices rose sharply in 2022, compounded by an increase in orders from large customers with low gross margins, leading to a decline in the company's profitability. Net profit to mother fell by -32.05% year-on-year during the same period. 1Q2024 achieved revenue of 0.256 billion yuan (YoY -11.61%), and net profit to mother for the same period was 0.025 billion yuan (YoY -26.08%), mainly due to weak downstream demand compounded by internal strategic adjustments within the company.

By the end of 2023, the company had production capacity of 375, 880, and 720 mainframes, and small machines, respectively, with a capacity utilization rate of about 95%. In 2023, the company's domestic sales and export sales accounted for 57.16% and 42.84% respectively. Export sales were mainly aimed at markets such as France, Portugal, Spain, Italy, and the United States.

In the injection molding machine sector, the company's products and services are positioned at the middle and high-end. Competitors include multinational companies such as Engel in Austria, KraussMaffei in Germany, and Sumitomo Demag in Japan, as well as well-known domestic companies such as Haitian International, Zhenxiong Group, and Yizumi. The company's overall gross margin is above average among peers, and has increased markedly since 2023.

The company entered the die-casting machine segment in 2022 and has yet to expand. According to the company's recruitment manual, the first 4,500T large die-casting machine has passed the customer's mold verification test and signed a cooperation agreement, and the machine has already been sent to the customer to complete installation and commissioning. The second 4500T die-casting machine was released in early 2024, and strategic cooperation framework agreements were reached with a number of interested companies. We believe that with the continuous expansion of the company's die-casting machine sector, the company's performance is expected to start a second growth curve.

The company plans to raise no more than 0.3378 billion yuan of capital in this sale. After deducting the issuance fee, the company plans to use 0.0578 billion yuan to supplement working capital, and the remaining 0.28 billion yuan for the “Terry large-scale integrated intelligent manufacturing base project” (annual output of 29 die-casting machines and 5,000 high-end injection molding equipment construction projects). The company expects the total investment amount of the project to be about 0.798 billion yuan. After the project is completed and put into operation, the company will expand the supply scale of high-end models of injection molding machines such as elbow bars and two-plate models. We It is believed that this will help the company further enhance its international competitiveness and expand its market share; at the same time, the project also includes promoting the industrialization process of the company's high-end die-casting machines. We believe this will help the company's die-casting machine sector to quickly achieve production volume and form the second major pillar of the company's performance.

The valuation of original shares is medium in the same industry, and the flexibility is average. The company's current P/E (TTM) is 30.26x, which is at a low level in its own history, and its P/B (MRQ) is 1.64x, which is at a low level in its own history. The total market value of the original shares was 2.331 billion yuan, accounting for 99.63% of the shares in circulation, and the share pledge ratio was 12.01%. The actual controllers of the company were Ying, Zheng Jianguo (personal nature). As of the end of 1Q2024, the largest shareholder (Hangzhou Tadrick Investment Management Co., Ltd.) held 39.6% of the company's shares. Underlying institutions have received little attention. The fluctuation rate in the past 180 days was 55.01%, and the elasticity was average.

Terms and pricing

The scale of debt conversion is small, and the debt base support is strong. The current bond conversion scale was 0.3378 billion yuan. The initial share conversion price was 8.29 yuan, and the latest parity was about 93.24 yuan. The bond conversion rating is AA-. The term is 6 years, the coupon interest rate is 0.3%, 0.5%, 1.5%, 2%, and 5%, respectively. The maturity redemption price is 115 yuan, the YTM corresponding face value is 3.18%, and the debt is about 97.74 yuan, which is highly protective.

risks

Prices of raw materials fluctuated; consumption of new production capacity fell short of expectations; downstream demand weakened.