Core viewpoints

The company is the main supplier of precision metal structures in China, implementing a cross-industry and multi-category development strategy. 2023H1 is affected by the weak demand for overseas semiconductor equipment parts, and its revenue shows a downward trend. at the same time, the proportion of foreign business with high gross margin has declined significantly, and its performance is under pressure in the short term. In the first half of the year, the company expanded the application field of energy storage business and increased market share, while acquiring Guanhong Intelligence, a manufacturer of intelligent equipment systems, to promote the transformation of the company from a precision metal manufacturer to a comprehensive manufacturing service provider with integrated capabilities.

Event

According to the company's semi-annual report for 2023, 2023H1 achieved operating income of 244 million yuan, down 15.23% from the same period last year; net profit from home was 50 million yuan, down 32.23% from the same period last year; and net profit after deducting non-return was 48 million yuan, down 33.27% from the same period last year. Of this total, 2023Q2 achieved operating income of 127 million yuan, down 18.29% from the same period last year; net profit from home was 28 million yuan, down 41.48% from the same period last year; and net profit from non-return was 29 million yuan, down 37.52% from the same period last year.

Brief comment

Foreign business leads to a decline in overall income, resulting in short-term pressure on performance

Revenue has declined and overseas business has shrunk. Affected by the shrinking demand for overseas semiconductor equipment downstream, 2023H1 achieved an operating income of 244 million yuan, down 15.23% from the same period last year. In terms of revenue, the company's precision metal structures, special equipment maintenance and other businesses achieved revenue of 2.41,0.03 and 1 million yuan respectively, which were-15.22%,-14.74% and-19.58% respectively compared with the same period last year. The company's business structure is relatively stable. Precision metal structures account for 98.51% of revenue, focusing on customized precision metal structure products manufacturing business as a whole. From a revenue sub-regional point of view, the company's 2023H1 achieved sales revenue of 1.64 yuan at home and 80 million yuan abroad, which was + 24.37% and-48.66% respectively compared with the same period last year. According to the economic situation at home and abroad, the company made a reasonable strategic adjustment in order to reduce operational risks, and increased the development of the domestic market in many fields. The proportion of foreign business income was 32.84%, compared with the same period last year. 21.38pct, foreign business income and share decreased significantly.

From the point of view of profitability, the gross and net profit margins of 2023H1 are 31.07% and 20.64% respectively, which are-6.87pct and-5.18pct respectively compared with the same period last year. The gross profit margin of the main precision metal structure business is 30.77%, year-on-year-6.84pct. From a regional point of view, the gross profit margin of domestic and foreign sales is 23.32% and 46.92% respectively, year-on-year-0.07pct and-3.30pct, respectively. The gross profit margin of domestic sales is about 23.60pct lower than that of foreign sales. The proportion of foreign business income decreased, and the company's gross profit margin showed a downward trend.

On the expense side, the period expense rate of 2023H1 is 4.91%, year-on-year-0.85pct, of which the sales, management, R & D and financial expense rates are 2.22%, 5.28%, 4.37% and-6.96% respectively, and + 0.33pct,-2.47pct, + 0.25pct and + 1.04pct respectively compared with the same period last year. Affected by the decline in operating income, the overall expense rate of the company has been slightly improved, of which the management expense of 2023H1 Company is 13 million yuan. Year-on-year decline of 42.24%, benefiting from the reduction in intermediary fees, the company's management costs have dropped significantly. In terms of profits, 2023H1 achieved a net profit of 50 million yuan, down 32.23% from the same period last year, while net profit from non-parent was 48 million yuan, down 33.27% from the same period last year. The company's overall revenue declined and the proportion of foreign businesses with higher gross profit margin shrank, resulting in short-term pressure on its performance.

The cross-domain flexible manufacturing system is complete, and in the first half of the year, the share of the business of energy storage products has been enhanced. The company's structural products are used in the field of semiconductor equipment, and in other equipment fields, such as new energy and power equipment, general equipment, medical devices and rail transit, with a large span of business areas and low coincidence of products in different areas. the company has the ability to develop and produce customized, complex processes, small batches, multi-varieties and other products. At the same time, it can quickly respond to customer needs and provide services. 2023H1 company grasps the market demand of energy storage business, gives full play to flexible production capacity, actively adjusts the company's internal production capacity and market development strategy, expands the business of energy storage products from a single supply field to a variety of application fields, and improves the market share.

The acquisition of Suzhou Guanhong Intelligence is expected to form a synergy and promote the company's strategic transformation to an integrated manufacturing service provider. The company intends to acquire intelligent equipment system manufacturer Guanhong Intelligence. On July 31, 2023, the company issued a preliminary plan for issuing shares and paying cash to purchase assets and raise matching funds and related party transactions. It intends to purchase 51% of Suzhou Guanhong Intelligent shares at a transaction consideration of no more than 408 million yuan by issuing shares and paying cash, of which 70% of the ① transaction consideration is to raise matching funds from no more than 35 specific targets. The payment amount for issuing shares shall not exceed 286 million yuan. 30% of the consideration of the ② transaction shall be paid in cash, and the cash payment shall not exceed 122 million yuan.

After the completion of the acquisition, the company will form a synergy with Guanhong Intelligence in business, application and technology, and Guanhong Intelligence is expected to contribute to performance increment. In terms of ① business, promote the application and expansion of production-aided intelligent equipment systems in the field of semiconductor equipment manufacturing, and enhance the intelligent level of localization of semiconductor equipment; in the field of ② application, the company can make use of the customer resources accumulated by Guanhong Intelligence in the fields of power and energy storage batteries to extend the application field of precision metal manufacturing and increase the scale of income. In terms of ③ technology, the company has set up the Automation Assembly Division to improve the integrated assembly capability of semiconductor equipment and other professional areas, focusing on supporting and meeting the needs of domestic semiconductor equipment manufacturers. The company will integrate the technical advantages of Guanhong Intelligence in integration and promote its transformation from a precision metal manufacturer to a comprehensive manufacturing service provider with integrated capabilities. In addition, Guanhong Intelligent undertakes that the audited net profit belonging to the shareholders of the parent company in 2023,2024 and 2025 (which is lower before and after deducting non-recurring profits and losses) is not less than 58 million yuan, 70 million yuan and 82 million yuan respectively.

Investment suggestion

Excluding the acquisition of 51% stake in Guanhong Intelligence, the company's operating income from 2023 to 2025 is expected to be 6.36,10.16 and 1.49 billion yuan respectively, up 2.64%, 59.85% and 46.61% respectively from 2023 to 2025. The net profit from 2023 to 2025 was 1.22,1.97 and 300 million yuan, respectively, up-18.82%, 61.73% and 51.91%, respectively. Corresponding to the 2023-2025 PE valuation of 30.46x, 18.83x, 12.40x, maintaining the "buy" rating.

Risk analysis.

1) downstream production expansion is not as expected: if the epidemic situation, industry cycle and other factors lead to a decrease in downstream investment and willingness to expand production, it will adversely affect the company's business development and operating performance.

2) New product development and capacity expansion are not as expected: if new product development and new project capacity expansion are not as expected, it will have a negative impact on the continuous improvement of its business performance in the future.

3) technological innovation risk: if the company can not maintain new product research and development or lack of investment in follow-up research and development, the company will face the risk of declining market competitiveness.

4) the risk of continuous supply chain tension: if the company continues to be affected by supply chain tension, it will have a negative impact on the company's capacity and revenue.