Report highlights:

China Machinery General: Backed by the Hefei General Machinery Research Institute, China Machinery GM's business, a leading fluid machinery technology company, covers the two major fields of fluid machinery and pipes. Among them, the main products of the fluid machinery business (operated by environmental companies) include refrigeration test equipment, sewage treatment equipment, and various other non-standard fluid machinery equipment. The business covers R&D and manufacturing of products related to fluid machinery, technical services, technical consulting, engineering design and complete equipment services. In terms of pipe business, the company has optimized and adjusted the plastic pipe business and is gradually withdrawing from the plastic pipe business.

Environmental engineering business is the core. Refrigeration testing and non-standard fluid machinery products and services are the revenue sources. Judging from the revenue share, environmental engineering and system integration, refrigeration test equipment and services, and non-standard fluid machinery products and services are the company's main sources of revenue. In 2023, they accounted for 39.3%, 20.1%, and 21.3% of the company's total revenue, respectively. From a profit perspective, the company's high-margin business is refrigeration test equipment and services, and non-standard fluid machinery products and services. The gross margins in 2023 were 24.6% and 21.3% respectively, making it the company's most profitable business with stable gross margins.

The technical strength is strong, and the multi-field layout is expected to receive orders for refrigeration technology and engineering. The company is the earliest unit in China dedicated to testing equipment engineering for refrigeration and air conditioning products. At present, the company's refrigeration and air conditioning product testing equipment has reached the international advanced level, with maximum cooling (heat) capacity, controllable temperature range, measurement and control accuracy, etc.; filling many domestic gaps in artificial environment simulation equipment and engineering such as multi-disaster coupling systems, automobile ring model systems, and dynamic test platforms for building environment chambers; in addition, the company is expected to use its many technical advantages in the field of environmental simulation to obtain orders on various tracks such as the cold chain and large scientific research bases. In terms of filtration and separation equipment, the company covers the entire “lithium extraction-lithium production-recycling” industry chain process and equipment for battery materials. In the future, with the gradual expansion of the lithium battery recycling market, the company is expected to enter the core link and usher in new business growth.

Investment advice and profit forecasting

China Machinery GM relies on the Hefei General Machinery Research Institute and has strong technical strength after years of accumulation. Along with the divestment of the pipe business and the gradual entry of various businesses laid out by environmental companies, we believe that the company will usher in increased profitability in the short term and have a good development trend in the medium to long term. The company's 2024-2026 revenue is expected to be 0.757/0.848/0.955 billion yuan, respectively, up 0.21%/12.08%/12.58% year on year, and net profit to mother is 0.044/0.056/0.063 billion yuan respectively, up 10.33%/27.56%/11.15% year over year, corresponding EPS is 0.30/0.38/0.43 yuan respectively, corresponding PE is 40.93/32.08/28.86x, for the first time Overlay gives an “gain” rating.

Risk warning

Risk of increased industry competition, risk of fluctuating raw material prices, risk of market demand falling short of expectations, risk of R&D falling short of expectations