According to the Zhitong Finance APP, Shanxi Securities released a research report stating that looking forward to Q4, under the favorable policies and downstream transformation trends, initiatives such as going global, upgrading to high-end, and venturing into new sectors have become new drivers of development. The demand for machine tool equipment is expected to continue to be released, combined with the marginal improvement in new orders in the first half of the year, the entire industry is expected to rebound and improve. The machine tool equipment industry benefits from equipment updates and independent controllability, with going global and upgrading to high-end becoming the key breakthrough directions for enterprise development. The scarcity of supply is determined by the demand for high-end and independent controllability; the exploration of overseas markets is expected to enhance the profitability and expansion space of enterprises.

Revenue is back to positive growth, and the overall operational situation is showing a recovery trend. In Q3, quarterly revenue increased by 5%. The aggregated revenue of 24 Q1-Q3 machine tool equipment sample companies was 20.36 billion yuan with a year-on-year growth of 3.1%. The aggregated revenue in a single Q3 was 6.66 billion yuan with a year-on-year growth of 4.9%. Among the 17 companies, 11 achieved revenue growth year-on-year, with the top five growth rates belonging to Keda Numerical Control (yoy +30.3%), Create Century (yoy +17.6%), Zhejiang Headman (yoy +16.9%), JDM Jingda (yoy +14.8%), and Weihai Huadong Automation (yoy +13.5%).

Profits are somewhat under pressure, mainly due to intensified market competition, price decreases in some products, and rising labor costs. The aggregated net income of the 24 Q1-Q3 machine tool equipment sample companies was 1.22 billion yuan with a year-on-year decrease of 22.1%, while the aggregated net income in a single Q3 was 0.36 billion yuan with a year-on-year decrease of 10.4%. The average gross margin of the 24 Q1-Q3 machine tool equipment sample companies was 24.1% with a year-on-year decrease of 0.9%, and the average net margin was 6.0% with a year-on-year decrease of 2.1%. In a single Q3, the average gross margin was 24.4% with a year-on-year decrease of 1.0%, and the average net margin was 5.4% with a year-on-year decrease of 0.8%.

Six listed companies saw an increase in contractual liabilities year-on-year. The growth rate of new orders for metal processing machine tools turned positive in the first half of 2024, and the performance of the machine tool sector is expected to recover. As of the end of Q3, the aggregated scale of contractual liabilities of the machine tool equipment sample companies was 4.95 billion yuan, a year-on-year decrease of 2.3%. Among the 17 companies, 6 companies saw a year-on-year increase in contractual liabilities, with the top companies being Weihai Huadong Automation (yoy +44.9%), Wuhan Huazhong Numerical Control (yoy +41.9%), Create Century (yoy +31.1%), Newell Brands (yoy +17.1%). The country encourages a new round of large-scale equipment updates, which is expected to drive the release of downstream customer update demands. In July 2024, several measures to support the "two news" initiatives were introduced, coordinating the allocation of 150 billion yuan of special long-term national bonds to increase scale, expand scope, lower the threshold, and support key areas for equipment updates.

Key recommended stocks include: Keda Numerical Control (688305.SH), Wuhan Huazhong Numerical Control (300161.SZ), Newell Brands (688697.SH). It is recommended to pay attention to Qinchuan Machine Tool (000837.SZ), Ningbo Haitian Precision Machinery (601882.SH), Yuhuan CNC Machine Tool (002903.SZ), JDM Jingda Machine(Ningbo)Co. (603088.SH), Guangdong Topstar Technology (300607.SZ), Guangdong Create Century Intelligent Equipment Group Corporation (300083.SZ), Zhe Jiang Headman Machinery Co., Ltd. (688577.SH).

Risk warnings: macroeconomic growth falls short of expectations; risks of intensified industry competition; risks of technological research and development; risks of fluctuating raw material and component costs; risks of core technology leakage and personnel loss.