We are deeply involved in high-end CNC machine tools, have deep technical accumulation, large-scale advantages, and a comprehensive product matrix.

Since its establishment, the company has focused on high-end CNC machine tool business. Its main products include three types of processing centers: gantry, horizontal and vertical. Among them, gantry machining centers are in a leading position in the industry and are the main source of revenue for the company. The downstream application fields of the company's products cover aerospace, automotive, mold and other industries. The company's overall operating performance has grown rapidly in recent years. From 2016 to 2023, the company achieved a compound growth rate of 18.58% in operating income and a compound growth rate of 38.21% in net profit to mother. With 2024H1, the company achieved operating income of 1.679 billion yuan and net profit of 0.294 billion yuan to the mother of Shou. Due to the scale effect, the company's profitability increased steadily. The gross margin and net margin continued to rise after 2019. The gross margin/net margin of the 2024H1 company was 28.36%/17.49%, respectively.

Promote independent research and development of core components, and domestic replacement of high-end machine tools can be expected. There is a big gap between China's high-end machine tools and international products. High-end machine tools and core components such as five-axis mainly rely on imports. The company has increased investment in R&D in recent years, continued to promote self-research on core components, and develop products to high efficiency, high speed and high precision. Compared with international manufacturers, the company's equipment is relatively cost-effective. With high-end initiatives such as self-development of core components and technology iteration, the company is expected to enter the domestic and foreign downstream high-end customer supply system and gradually replace domestic production.

Laying out high-end equipment for emerging industries, the synergy effect within the group is remarkable. The company grasps the development trends of emerging industries such as integrated die-casting for new energy vehicles, is actively expanding the processing equipment required for new processes, and has launched high-efficiency processing equipment for NEV processing. The Ningbo high-end CNC machine tool intelligent production base project started in September 2022 and will be used for mass production of processing equipment for core components of new energy vehicles. The company is backed by Haitian Group. The product has strong synergy with its brother company Haitian Metal, which focuses on the development of die-casting equipment, which is expected to broaden the future growth space.

Actively expand overseas business, and achieve both an increase in overseas business scale and profit level. Relying on Haitian Group's overseas sales channel layout, the company's overseas business has grown rapidly and has established subsidiaries in Southeast Asia, Turkey, Mexico, etc. In 2017-2022, the company's overseas revenue rose from 0.032 billion yuan to 0.337 billion yuan, and the revenue share increased from 2.54% to 10.80%; the gross margin of the overseas business increased steadily and continued to be higher than the gross profit level of the domestic business. We believe that as the company's overseas channel layout is further improved in the future, overseas business is expected to further drive the company's growth.

Profit forecast: We select the domestic market CNC machine tool manufacturers Genesis, Guosheng Zhike, and Neway CNC as comparable companies. The average PE valuation of comparable companies in 2024 was 23.15 times. We consider that the company showed significant leadership in cost control and economies of scale. The comprehensive gross margin bucked the trend in 23, which was significantly higher than that of comparable companies. At the same time, the company has increased investment in R&D in recent years, and the advantages of self-research have gradually become prominent, and growth momentum is strong in domestic substitution and overseas business. The company was given a PE valuation of 23-25 times in 2024, with a reasonable value range of 25.98-28.24 yuan/share (the company's EPS is expected to be 1.13 yuan in 2024), and a reasonable market value range of 13.6-14.7 billion yuan. It was covered for the first time and gave it a “superior to the market” rating.

Risk warning: the company's overseas customer expansion falls short of expectations, risk of fluctuations in downstream demand, intensifying industry competition