A leader in domestic CNC machine tools, business integration has achieved rapid transformation. The company's predecessor, Shenzhen Genesis, was deeply involved in the field of CNC machine tools and launched the first generation drilling, milling, and tapping processing center in 2011. In 2015, the listed company Jinsheng Intelligence acquired 100% of Genesis's shares in order to integrate upstream and downstream of the industrial chain. In 2018-2020, listed companies implemented business integration in response to market changes, divested the loss-making precision structural parts business, established a strategy to focus on developing high-end intelligent equipment business, and changed their name to Genesis. The company is positioned as a high-end CNC machine tool, and has gradually become one of the enterprises with the widest technical breadth and product breadth in the domestic machine tool industry. 3C drilling machines lead the industry, and general machine tools continue to expand. In recent years, the company has continued to deepen division reforms, promote cost reduction and efficiency measures, and the quality of operations has improved markedly. 24Q1 achieved operating income of 856 million yuan, -24.27% year-on-year; realized net profit of 59 million yuan, or -51.46% year-on-year. With the consumer electronics cycle recovering from the second half of 2023, compounded by continued macroeconomic improvements, the company is expected to reach an inflection point in 2024.

3C drilling machine: Consumer electronics bottom recovery, drilling machine leaders benefit from stock updates+incremental demand. Since September 2023, new models such as the Huawei Mate 60 series, Apple iPhone 15 series, and Xiaomi 14 series have been released centrally. New technologies such as satellite calls have been rapidly applied to smartphones. Technology iterations are frequent, driving a year-on-year increase in smartphone shipments. The year-on-year growth rate of 2023Q4 global mobile phone shipments turned positive. In 24Q1, global mobile phone shipments were 289 million units, an increase of 7.80% over the previous year. At the same time, AI technology is rapidly penetrating smartphones and PCs, commercial products are being launched one after another, and a new innovation cycle is expected to drive a wave of switching. 3C is the company's traditional advantage. In 2012-2014, the company established cooperation with major domestic foundries such as BYD Electronics, Changying Precision, Foxconn, and Lingyi Intelligent Manufacturing; in 2020, it became an upstream supplier in the high-end consumer electronics industry chain. By the end of 2023, the company had sold more than 90,000 drilling machines worldwide. It had basically achieved core customer coverage in the 3C field, leading the industry in market share. Furthermore, under the trend of using titanium in mobile phones, processing time and processing difficulty have increased dramatically, which is expected to spur incremental demand in the drilling machine market. The company is a leading 3C drilling machine, and stock equipment updates+incremental market demand are expected to drive the company's performance release.

General machine tools: The domestic machine tool market is broad, and general-purpose products inject growth momentum. The machine tool industry is a typical cyclical industry. Currently, the big cycle (renewal cycle) is rising, and the small cycle (inventory cycle) is gradually bottoming out. The central government is promoting large-scale equipment updates, and related supporting policies are being implemented one after another, which is expected to drive the release of demand for machine tools. China is the world's largest producer and consumer of machine tools, but the overall industry is big but not strong, and the gap between import and export prices is obvious. Currently, high-end machine tools and core components are still dependent on imports, and the general trend of autonomy and control is guided by policies. Since 2017, the company has accelerated its diversified layout in the field of general machine tools, and the product matrix has been continuously improved. With strong product competitiveness and cost performance, it has achieved a rapid increase in market share in the general field. The core product vertical processing center sold a total of 40,000 units in 2023. The company focuses on high-end CNC machine tools and continues to make rapid breakthroughs in high-end 5-axis and core components, further enhancing brand value. At the same time, the company is actively promoting a global layout, and overseas markets are growing significantly, which is expected to open up room for growth.

Investment advice: We believe that the company's 3C drilling machines will benefit from the recovery in downstream demand driven by the upward consumer electronics cycle, the continuous expansion of high-end and high-end general-purpose machine tool products, and the import substitution of domestic machine tools and the acceleration of overseas travel will open up room for growth for the company. The company is expected to achieve net profit of 494 million yuan, 621 million yuan, and 763 million yuan respectively in 2024-2026, corresponding EPS of 0.29, 0.37, and 0.45 yuan, and corresponding PE of 21 times, 17 times, and 14 times, giving a “recommended” rating for the first time coverage.

Risk warning: risk of economic recovery falling short of expectations; risk of new product expansion falling short of expectations; risk of rapid iteration of core technology; risk of increased market competition, etc.