Oke Precision Cutting Tools Co.Ltd(688308) (688308)
The company takes the lead in cemented carbide serrated blade in China and develops horizontally to build a leading CNC blade enterprise
The company has focused on cemented carbide tools for 25 years and is the largest sawtooth blade manufacturer in China. In 2011, the company expanded horizontally to the field of NC blades. In 2020, the output of NC blades reached 55.49 million, second only to Zhuzhou Diamond, which is close to Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) . The company's performance has increased rapidly in recent years. From 2017 to 2020, the revenue and net profit attributable to the parent company achieved cagr17.5% respectively 93% and 33.47%, and the growth rate was further accelerated in 2021q3. The revenue and net profit attributable to parent company increased by 53.18% and 119.01% respectively year-on-year. With the expansion of production capacity, the high growth trend of subsequent performance is expected to remain. At the same time, with the rapid expansion of the company's scale, the scale effect gradually appeared. The gross profit margin and net profit margin in 2021q3 were 34.34% and 22.42% respectively, an increase of 6.85pcts and 12.02pcts compared with 2017. At the same time, the company has excellent cost rate control during the period. The management and sales cost rates in 2021q3 decreased by 2.07 PCTs and 1.51 PCTs respectively compared with 2017, resulting in high operation efficiency.
The cutting tool industry is in the golden period of domestic substitution. The performance of the company's fist products directly catch up with Japan and South Korea, and has the foundation to promote domestic substitution
In 2020, the global cutter market will be about US $23.7 billion and the Chinese market will be about RMB 42.1 billion. According to our estimation, the Chinese market is expected to reach RMB 63.1 billion in 2030 and maintain a compound growth rate of about 4% from 2020 to 2030. In 2020, the domestic substitution space in China's tool market will be about 13 billion yuan, and Chinese tool enterprises still have a large space to promote the domestic substitution market. Under the dual influence of trade friction and epidemic situation, high-end customers represented by military industry and aerospace have strengthened their willingness to try domestic products in order to ensure the safety of the supply chain. We believe that we are now in the golden period of domestic substitution of high-end knives. The company has adopted a more differentiated product R & D strategy. At present, the tool products sold are mainly for stainless steel and steel parts processing, and have accumulated a large number of independent R & D technologies. The performance indicators are close to those of Japanese and Korean manufacturers, which has the basis for promoting domestic substitution.
Expand production capacity, expand categories, strengthen the supporting capacity of solutions, and the product structure is expected to be continuously optimized
At present, the company's IPO raised 40 million pieces of high-end NC blades and the project will be put into operation in 2022. According to our estimation, the annual production capacity of NC blades is expected to reach 115 million pieces in 2023, maintaining an increase of about 28% CAGR from 2020 to 2023. It plans to invest in the NC Tool Industrial Park project to expand the product categories of high-performance bars, hardening tools, NC tools, ceramic blades and so on. We believe that the company's subsequent CNC blade business will 1) benefit from capacity expansion and maintain high revenue growth; 2) The new production capacity is positioned to be more high-end. At the same time, it can cooperate with the new products expanded by the tool Industrial Park project to provide supporting sales in the form of solutions, improve product added value, optimize product structure and improve profitability.
Promote strategic cooperation with core customers, ensure capacity digestion, increase the development of end customers, and the proportion of solution revenue is expected to increase
In order to digest the new capacity, the company has signed strategic cooperation agreements with 15 customers and is expected to digest about 30% of the total capacity in the next five years; It is expected to absorb about 50% of the total production capacity by developing key customers and potential customers. At the same time, the company has focused on improving the selch brand for the terminal market, and increased the development of terminal customers through the development of brand franchise stores and special field markets (wind power, rail transit, etc.). It is expected that the proportion of revenue from providing solutions will increase in the future.
Investment advice and profit forecast
We expect that the net profit attributable to the parent company from 2021 to 2023 is expected to be RMB 238 / 287 / 389 million respectively, corresponding to the current pe28x / 23x / 17x. Considering the growth space of the cutting tool industry, the company's high-end CNC blade capacity continues to climb, and the optimization of product structure is expected to improve profitability and maintain the "buy" rating.
Risk statement
The progress of domestic substitution is less than expected, the scale expansion of tool market is less than expected, and the capacity expansion is less than expected.
