Key points of investment

Revenue increased steadily. Net profit to mother and net profit after deducting non-net profit both increased in the first half of 2024. In the first half of 2024, the company achieved revenue of 0.41 billion yuan, +14.93% year-on-year; net profit to mother was 0.072 billion yuan, +15.35% year-on-year, and net profit without return to mother was 0.071 billion yuan, or +19.52% year-on-year. The steady increase in the company's revenue scale during the reporting period was mainly due to the smooth progress of market development and the further improvement of domestic and foreign sales systems, which in turn led to an increase in the company's revenue. The simultaneous increase in profitability is mainly due to the further refinement of corporate governance and the improvement of overall operational efficiency.

Among them, in the second quarter of 2024, the company achieved revenue of 0.24 billion yuan, +16.17% year-on-year, net profit of 0.055 billion yuan, +43.10% year-on-year, after deducting non-attributable net profit of 0.054 billion yuan, or +48.26% year-on-year.

The expense ratio declined during the period, and the company's profitability increased. The company's gross sales margin for the first half of 2024 was 42.60%, -2.22pct year on year. Among them, the gross sales margin for the second quarter of 2024 was 46.39%, +1.93pct year on year, and +9.15pct month-on-month, showing a marginal positive trend.

The main reason for the year-on-year decline in gross sales margin in the first half of 2024 is that hardened tools are still in the process of climbing capacity, and various fixed costs are large. Net sales margin was 17.53%, +0.06pct year over year.

The company's expense ratio declined in the first half of 2024, leading to a recovery in net sales interest rates. The company's sales/management/R&D/finance expense ratio for the first half of 2024 was 4.53%/4.43%/7.45%/4.17%, -0.78/ -1.63/-0.92/+0.42pct year-on-year. The main reasons for the year-on-year decline in sales and management expense ratios are the reduction in share payments and the reduction in remuneration expenses for company managers in the current period.

Production capacity for fund-raising projects & convertible bond fixed investment projects is gradually being released, and the layout of overseas blue ocean markets opens up medium- to long-term growth space

The IPO fundraising project was successfully completed, opening up production capacity bottlenecks. In April 2023, the company successfully completed its initial public stock offering to raise capital investment projects “Precision CNC Tool Digital Production Line Construction Project” and “R&D Center Project”, which will effectively solve the company's production capacity bottlenecks, enrich the product structure, meet the rapidly growing needs of the market, and further enhance the company's R&D strength and intelligent manufacturing capabilities, laying a solid foundation for the company to continue to enhance its competitiveness.

The overseas channel layout was gradually realized, and overseas revenue increased in the first half of 2024. The pace of the company's “going global” continues to accelerate, and overseas market development continues to increase. The company expanded the size of the foreign trade business team, participated in the Ho Chi Minh International Machine Tool and Metal Processing Exhibition in Vietnam and the Russian Machine Tool and Metal Processing Exhibition, and continued to expand market channels, enhance brand awareness, and further expand overseas business. In the first half of 2024, the company achieved overseas revenue of 0.023 billion yuan, an increase of 43.11% over the previous year. The company's overseas channel layout is expected to continue to be fulfilled in the future.

Profit Forecasts and Investment Ratings:

We maintain the company's 2024-2026 net profit forecast of 0.199/0.246/0.302 billion yuan, respectively. The current market value corresponds to PE of 14/11/9 times, respectively. Considering that the company's overseas channel layout accelerates the implementation of performance, we maintain the company's “gain” rating.

Risk warning: The recovery of the manufacturing industry falls short of expectations, the price of raw materials tungsten carbide fluctuates, and market competition intensifies.