Event

The company announced its results for the first three quarters of 2021, with operating income of 2.384 billion yuan, an increase of 65.32% over the same period last year, and net profit of 284 million yuan, an increase of 70.39% over the same period last year. Among them, Q3 achieved operating income of 993 million yuan in a single quarter, an increase of 51.87% over the same period last year. The net profit of returning to the mother was 106 million yuan, an increase of 26.08% over the same period last year, and both revenue and net profit reached record highs in a single quarter.

Brief comment

The downstream demand is good, and the operating income keeps growing rapidly.

In the first three quarters, the company achieved operating income of 2.384 billion yuan, an increase of 65.32% over the same period last year. Q3 realized operating income of 993 million yuan in a single quarter, an increase of 51.87% over the same period last year. The rapid growth of income is mainly benefited from: 1 the impact of the COVID-19 epidemic has gradually normalized, global home consumption has become the new normal, and the orders of the downstream power tools industry have continued the high boom since the second half of 2020, and the demand for spare parts continues to be exuberant. Company 2 is the invisible champion of the global power tools accessories industry, with a global high-end customer base in the field of power tools, fully benefiting from the high demand of the downstream power tools industry; 3 companies continue to increase investment in research and development, strengthen the research and development of new products, new projects and new technologies, and combine their own customer certification advantages to promote the release of high-grade drill chuck, electric hammer, quick change nut and other new products in the client. (4) the exchange power station products have entered the stage of mass listing, which promotes the rapid growth of automatic product business.

Rising costs and product structure adjustment led to a decline in profitability, but the management efficiency improved the company Q3 to achieve a net profit of 106 million yuan in a single quarter, which was + 26.08% year-on-year, which was 51.87% lower than the revenue growth rate; the gross profit margin was 21.11%, a decrease of 8.89%pct, a decrease of 1.36%; and a net profit rate of 10.65%, a decrease of 2.18%pct and a month-on-month increase of 0.12%.

The gross profit margin decreased significantly compared with the same period last year, but the net profit rate decreased slightly compared with the same period last year, mainly due to: 1 the price of raw materials increased obviously. from January to September 2021, the average domestic spot price of aluminum was 185,000 yuan / ton, up 432.5% respectively over the same period last year. The average price of Q235 φ 20 of round steel was 5187.42 yuan / ton, up 39.90% from the same period last year. (2) the income of the exchange power station business with low gross profit margin grew rapidly, which promoted the increase in the proportion of revenue from automatic products. In the first half of 2021, automatic products accounted for 17.43% of the total revenue, an increase of 9.34 pct over the same period last year. The gross profit margin of automatic products was 13.12%, lower than the overall gross profit margin of 24.08% in the first half of the year, and decreased by 9.13% during the single quarter of 3.74 pct;3Q3 compared with the same period last year. 2.70%pct decreased. Among them, the sales expense rate, management expense rate and financial expense rate were 0.60%, 3.25% and-0.65%, respectively, down 1.16,1.50,1.94 pct from the same period last year, mainly due to the continuous improvement of the company's management capacity and efficiency. The R & D expense rate was 5.93%, an increase of 1.89 pct over the same period last year, mainly due to the company's continuous strengthening of new product development and rapid growth of R & D investment.

The invisible champion position of the power tool accessories industry continues to be consolidated, and the power station meets the development opportunity. The invisible champion position of the power tool accessories industry continues to consolidate, and the market share is expected to continue to increase: the company is the invisible champion of the global power tool accessories industry. It can provide downstream power tool enterprises with drill chucks, precision castings, powder metallurgical parts and alloy saw blades and other components. By the end of the first half of 2021, the company has an annual production capacity of 66 million drill chucks, 12000 tons of powder metallurgy parts, more than 2500 million precision castings, more than 3000 million power tool switches and battery packages; customers have accumulated leading domestic and foreign power tool enterprises such as Bosch, Mutian, Black & Decker, Techtronic Industries, Nanjing Deshuo, Ruiqi and Jiangsu Dongcheng. Specifically, at present, the company is the core supplier of Techtronic Industries's middle and low-end power tool drill chuck, and its market share in its high-end power tool drill chuck is still low, and it is expected to continue to expand its share in Techtronic Industries; the largest customer of precision castings is Techtronic Industries, and the customer base has been expanded to Stanley Black & Decker and Bosch, etc., precision castings will maintain rapid growth. Powder metallurgy parts and alloy saw blades will also benefit from the high prosperity of the tool hardware industry.

The exchange power station has entered the stage of mass listing and ushered in a good opportunity for development: the company acquired Demaike in 2016, and its main business is factory automation, logistics automation and robot intelligent equipment. In August 2017, the wholly-owned subsidiary Demaike and NIO Inc. jointly funded the establishment of Kunshan Sworth, with a 44% stake. Swop's main business includes automatic power station exchange, recharging Internet platform and power battery echelon construction using big data platform. Since 2021, the company's power exchange business has entered the stage of mass listing, driving the revenue of automatic products to grow by 280.04% in the first half of the year, and we estimate that it will maintain rapid growth in the third quarter. Looking to the future, the current new energy vehicle "charging + replacement + separate sale" mode is mature. By the end of 2025, the total number of NIO Inc. replacement power stations in the world alone is planned to exceed 4000. The national incentive policy for exchange power stations also continues to be released. On October 28, 2021, the Ministry of Industry and Information Technology launched a pilot project for the application of new energy vehicle exchange mode in 11 cities. It is expected to promote more than 100000 replacement vehicles and more than 1000 replacement stations. The exchange power station ushered in a good opportunity for development. As a leading enterprise in the exchange power station, the company enjoys the first-mover advantage.

Profit Forecast and Investment suggestion

We expect the company to achieve operating income of 34.70,44.26 and 5.531 billion yuan respectively from 2021 to 2023, an increase of 60.27%, 27.55% and 24.97% respectively over the same period last year, and the net profit of 3.76,4.90 and 570 million yuan respectively, up 47.83%, 30.26% and 16.34% respectively over the same period last year, corresponding to 17.50,13.43,11.55 times PE, maintaining the "buy" rating.

Risk hint

The risk of a decline in the prosperity of the tool hardware industry; the risk of rising raw material costs; and the risk that business orders for power stations fall short of expectations.