Conclusion: The company is a leading domestic injection molding machine. Benefiting from global economic recovery and capital expenditure expansion, the company's profitability is expected to increase further under the influence of full orders and third-generation product volume and scale, driving the company's revenue and profit to increase quarterly. It is estimated that the company's 2021-23 EPS will be 1.90, 2.20, and 2.49 yuan. Based on comparable company valuations, the target price of HK$36.5 will be given, corresponding to 16.2 times PE in 2021.
Downstream demand is recovering and asset spending is expanding, and high contract liabilities indicate strong orders. Automobiles and home appliances together account for more than half of the sales volume of injection molding machines. The marginal positive trend in automobile and home appliance sales is obvious. From January to 2, 2021, automobile production increased by 89.9%, and over the same period in 2019, retail sales of ice washing and empty ice washing all increased by more than 30%. The recovery of plastic used in ice and washing even exceeded the same period in 2019. The recovery in main downstream demand will drive a sharp increase in demand for medical plastic products. The company's contract debt reached a record high at the end of 2020, indicating strong orders, which is expected to drive continued revenue growth.
Product iteration and scale effects enhance profitability, and RCEP favors the company's overseas business expansion. The company invests heavily in R&D and rapidly iterates products. With the introduction of third-generation technology in 2019, the gross margin at the top of the industry is expected to continue to increase. Under the scale effect, the company's cost rate is far lower than that of its peers, and profitability is expected to further improve. The company's global layout is mature, and its share of exports has increased overall. It has reached 43.1% in 2020, and China accounts for more than 30% of injection molding machine exports to RCEP member countries. We expect the tariff relief and convenient cross-border movement of services and personnel brought about by the signing of the RCEP, which are expected to significantly benefit the company's overseas business expansion.
Catalysts: Economic recovery exceeds expectations, product price increases, and performance exceeds expectations.
Risk factors: weakening macroeconomic margins, repeated overseas outbreaks, anti-dumping investigations in non-RCEP countries