The company released its 2024 interim report

In the first half of 2024, the company achieved revenue of 0.58 billion yuan, +8.7% year-on-year, and realized net profit of 0.06 billion yuan to mother, or -44.6% year-on-year. Looking at the second quarter alone, the company achieved revenue of 0.32 billion yuan, +26.7% year-on-year, and +19.5% month-on-month; realized net profit of 0.03 billion yuan to mother, -38.4% year-on-year, and +1.3% month-on-month.

Overseas market revenue increased rapidly; capacity utilization declined, gross margin fell in the first half of 2024, and the domestic macroeconomic situation was weak. The company focused on developing overseas markets. Overseas revenue was 0.12 billion yuan, +94.7% year-on-year. As a result, total revenue grew steadily; of these, CNC tool export revenue was 97.07 million yuan, +117.9% over the same period last year.

2024H1, the company's comprehensive gross margin was 26.1%, -6.5 pp; Q2's gross margin in a single quarter was 27.0%, -6.1 pp year on year, +1.9 pp. We judge that the year-on-year decline in the company's gross margin was mainly due to insufficient utilization rate of CNC blade production capacity and changes in product structure.

Expense rates increased during the period; net interest rates were squeezed

In the first half of 2024, the company's cost rate for the period was 15.1%, +3.0pp year on year, mainly due to increased R&D investment and financial expenses; in the 2nd quarter, the company's cost ratio was 15.2%, -0.3 pp year on year, +0.2 pp month on month. The company's net interest rate for the first half of the year was 10.4%, -10.0pp; Q2's net interest rate for the single quarter was 9.6%, -10.2pp year-on-year, and -1.7pp.

Optimistic about the marginal reversal of the procyclical cycle, the company fully benefited

Reviewing the profit cycle of domestic industrial enterprises of nearly 40 years, we found that resonating with the global economic recovery is a necessary condition for the domestic industry's procyclical cycle, and that the Federal Reserve's interest rate cut is the core switch for global economic recovery. Currently, US inflation has been effectively controlled, and the unemployment rate has begun to rise. S&P Global predicts that the Federal Reserve will cut interest rates for the first time in September, and global demand is about to bottom out. After the Federal Reserve cuts interest rates, the manufacturing industry usually recovers better than the service sector. During the painful period of the global economy before and after the Federal Reserve cut interest rates, domestic support for steady growth policies was increased to guarantee economic development goals throughout the year through measures such as cutting interest rates, speeding up the issuance of special bonds, and issuing ultra-long-term special treasury bonds. We believe that a new profit cycle for domestic industrial enterprises is about to begin, and core intermediate indicators such as industrial inventory and PPI have already bottomed out and rebounded. The company's main product, CNC tools, as industrial consumables, will fully benefit from the domestic procyclical recovery.

Investment advice

We expect the company's 2024-2026 revenue to be 13.1 billion yuan, 15.9 billion yuan, +22%, and +23%, respectively; 2024-2026 net profit to mother will be 1.5, 2.0, and 270 million yuan, respectively, -9%, +33% and +35%; EPS in 2024-2026 will be 0.95, 1.27 and 1.72 yuan, respectively, and the 2024/8/30 stock price of 16.05 yuan will be 17, 13 and 9 times PE. The company is a leading domestic CNC tool enterprise, expanding domestic and foreign markets simultaneously, and has a lot of room for growth. First coverage, giving a “buy” rating.

Risk warning

The risk of macroeconomic fluctuations, the risk of fluctuations in raw material prices, and increased risk of industry competition.