Key points:

The company is a leader in China's photovoltaic vacuum pump industry. In recent years, its performance has maintained rapid growth. Shanghai Hanzhong Machinery Co., Ltd. was established in 1998 and listed on the Shenzhen Stock Exchange in 2007. In 2009, Zhejiang Hansheng, a wholly-owned subsidiary of the company, was established. In 2011, the subsidiary Hanzhong Precision Machinery (Hong Kong) Co., Ltd. was established. In 2019, Shanghai Hanzhong Vacuum Technology Co., Ltd. was established to lay out fields such as photovoltaics and semiconductors. The company has been deeply involved in the field of vacuum pumps and various compressors for many years. It is currently a leading enterprise in the field of photovoltaic vacuum pumps in China, and is also a domestic company that supplies semiconductor vacuum pumps in small quantities. In 2023, the company's revenue increased 18.0% year on year to 3.85 billion yuan, with a compound growth rate of 20.1% in the past eight years; net profit to mother increased 34.2% year on year to 0.86 billion yuan, with a compound growth rate of 23.8% in the past eight years.

The company released a quick performance report for the first half of 2024. Profitability continued to rise. Recently, the company released a quick performance report for the first half of 2024. As the company actively develops new energy-saving and environmentally-friendly products, increases marketing efforts, and continues to accept orders, the company's revenue increased 3.7% year-on-year to 1.83 billion yuan in the first half of the year. At the same time, the company has further improved its profitability through measures such as product restructuring, budget management, cost reduction and efficiency. In the first half of the year, the company's net profit to mother increased 24.0% to 0.45 billion yuan, net profit after deduction increased 21.6% year on year to 0.43 billion yuan, basic earnings per share increased 24.0% to 0.85 yuan, and the weighted average ROE increased 0.25 pct to 11.7% year on year.

According to this performance report, we can estimate that the company's revenue for the second quarter of this year was about 1.09 billion yuan, up 0.6% year on year; net profit to mother was about 0.31 billion yuan, up 23.3% year on year; net profit after deduction was about 0.29 billion yuan, up 20.5% year on year. The company's performance continues to grow.

Large-scale equipment renewal policies continue to be implemented, which is expected to stabilize industry demand. In March of this year, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which proposed “promoting equipment upgrading in key industries, speeding up the promotion of high-efficiency and energy-saving equipment, and implementing energy saving and carbon reduction transformation by industry sector.” At the same time, the Ministry of Industry and Information Technology also issued the “Implementation Plan for Promoting Equipment Renewal in the Industrial Sector”, which proposes to promote energy efficiency upgrades for key energy use equipment. Focus on improving energy efficiency levels, promote the upgrading of key energy equipment such as boilers, motors, transformers, refrigeration and heating air compressors, heat exchangers, and pumps in various fields, and promote the application of energy-saving equipment with energy efficiency level 2 or above. We believe that with the gradual implementation of large-scale equipment renewal plans and related incentive policies, industrial energy-saving equipment used in key industries and high-energy consumption fields is expected to usher in strong demand for renewal.

Investment advice

As the domestic economy continues to grow, equipment renewal policies are gradually implemented, and the company actively develops energy-efficient products, the company's refrigeration and air compressor business is expected to continue to grow. At the same time, with the gradual expansion of the company's semiconductor products and the gradual stabilization of the photovoltaic industry, the company's vacuum product revenue is also expected to stabilize and even rise in the future. In addition, the company vigorously develops after-sales maintenance and other businesses, and the company's performance is expected to continue to grow in the future. In 2024-2026, the company's revenue is estimated to be 4.02, 4.62, and 5.39 billion yuan, up 4.4%, 14.8%, and 16.8% year on year; net profit to mother is 1.02, 1.18, and 1.38 billion yuan, up 18.4%, 15.1%, and 17.0% year on year. Corresponding to the closing price on July 24, the price-earnings ratio was 8.1, 7.1, and 6.0 times. Given that the policy is expected to drive the growth of the company's downstream demand, the combined effect of reducing the company's costs and increasing efficiency is outstanding, and the company's performance is expected to maintain rapid growth, corresponding to the current low valuation level. As a result, we upgraded our company rating from “Overstock” to “Buy.”

Risk warning

The implementation of the equipment renewal policy fell short of expectations. Domestic economic growth fell short of expectations. The company's renewal and semiconductor business development fell short of expectations. Prices of raw materials have risen.