occurrences

On August 5, 2024, the company released its 24-year report. 1H24 achieved operating income of 0.41 billion yuan, a year-on-year increase of 14.93%; net profit to mother was 0.072 billion yuan, an increase of 15.35% over the previous year. 2Q24 achieved operating income of 0.24 billion yuan, up 16.17% year on year and 41.43% month on month; realized net profit of 0.055 billion yuan, up 42.82% year on year and 218.02% month on month.

reviews

The company's CNC blade business is expected to achieve “sharp rise in volume and price” growth, which will significantly drive the company's performance improvement. 1Q24 The company's revenue increased year on year but net profit to mother fell year on year. We believe that cost pressure mainly affected profits due to insufficient utilization of the company's production capacity.

The 2Q24 company's gross margin improved significantly to 46.39%, up 4.34 pcts year on year and 24.58 pcts month on month. It is expected to be mainly due to the “sharp rise in volume and price” in the CNC blade business. Among them, the “quantitative increase” mainly comes from the company's direct sales team building efforts and direct sales customer development efforts on the basis of a mature distribution system. The company's technical development capabilities and technical service capabilities have been continuously improved, and preliminary cooperation has been reached with key customers in some key domestic industries; in addition to optimizing the product structure, the overall industry has carried out a round of price increases due to the price increase of tungsten carbide, the core raw material for tools. According to the “Science and Technology Innovation Board Daily” information, the company has increased prices by 3%-10% since May this year, which has contributed significantly to the increase in gross margin.

Overseas revenue is growing rapidly, and it is expected that it will continue to increase in the future. In '23, the company achieved overseas revenue of 46.7603 million yuan, a year-on-year increase of 60.9%. 1H24 achieved overseas revenue of 24.0669 million yuan, an increase of 43.11% over the previous year, and continued to maintain high growth. The company continues to make efforts in overseas sales, increase the size of the foreign trade business team, participate in the Ho Chi Minh International Machine Tool and Metal Processing Exhibition in Vietnam and the Russian Machine Tool and Metal Processing Exhibition, continue to broaden market channels, enhance brand awareness, and further expand overseas business. Overseas revenue is expected to continue to grow at a high rate in the future.

Net operating cash flow improved significantly in 2Q24. The company's net operating cash flow for 2Q24 was 34.1899 million yuan, an increase of 18.6622 million yuan over the previous year, and an increase of 69.3006 million yuan over the previous year.

Profit Forecasts, Valuations, and Ratings

The company is expected to achieve net profit of 0.2/0.271/0.341 billion yuan from 24 to 26, corresponding to current PE14X, 10X, and 8X. Considering the continuous advancement of domestic domestic substitution in the tool industry, there is plenty of room for growth when going overseas, and maintaining a “buy” rating.

Risk warning

The progress of domestic substitution fell short of expectations, the increase in the average price of CNC blades fell short of expectations, the expansion of production capacity fell short of expectations, and the overall improvement in the gross margin of hard alloy tools fell short of expectations.