Shareate Tools Ltd(688257) (688257)
Investment Event: Shareate Tools Ltd(688257) released that the company plans to use the over raised fund of 70.8 million yuan to acquire 60% equity of Zhuzhou Weikai from Zhuzhou Jinwei. At the same time, it plans to use the over raised fund to jointly increase the capital of Zhuzhou Weikai with Liu Changbin, the shareholder of Zhuzhou Weikai, of which Shareate Tools Ltd(688257) contributes 40 million yuan and Liu Changbin contributes 8.512 million yuan. After the completion of the transaction, Shareate Tools Ltd(688257) will hold 66.36% equity of Zhuzhou Weikai and Liu Changbin will hold 33.64% equity of Zhuzhou Weikai.
Acquire and increase the capital of Zhuzhou Weikai, enter the CNC blade industry, and improve the layout of the company’s cemented carbide industry chain. The company invested 110.8 million yuan and obtained 66.36% equity of Zhuzhou Weikai. In 2020, Zhuzhou Weikai achieved an operating revenue of 36.71 million yuan, a net profit of 6.08 million yuan, a gross profit margin of 38% and a net profit margin of 16.56%; From January to July 2020, the company achieved an operating revenue of 28.19 million yuan, a net profit of 7.755 million yuan, a gross profit margin of 40% and a net profit margin of 27.5%. We expect Weikai to achieve an operating revenue of 50 million and a net profit of 11 million this year, so the company’s acquisition and capital increase price corresponds to 15 times of this year’s PE valuation. Zhuzhou Weikai focuses on the R & D and production of NC blade base materials, groove structure, finishing and surface coating, focuses on solving the problems of blade edge integrity, dimensional consistency and performance stability, and provides high-quality products, professional technical solutions and service solutions for high-speed railway parts, auto parts, machine tools, molds, Aerospace and other industries, With nearly 20 brands and more than 800 models of blade products, the products mainly include turning series, milling series and drilling series. Mr. Liu Changbin, founder of Zhuzhou Weikai, was the general manager of Jiang tungsten carbide. He produced high-end CNC coated blades with completely independent intellectual property rights in Jiang Hardware Company. It took only two years from R & D to realizing the production capacity of 10 million pieces. He is an expert in the CNC blade industry. Shareate Tools Ltd(688257) since its establishment, it has focused on the field of cemented carbide, extended its strategic layout from cemented carbide products to tools, acquired Weikai and cut into the field of NC blades, which has improved the layout of the company’s cemented carbide industry chain.
China’s CNC blade industry is facing opportunities of manufacturing upgrading and domestic substitution. The annual market space of the global machine tool industry is about 200 billion, and that of China is 40 billion, of which the market space of cemented carbide NC blades exceeds 10 billion. China’s manufacturing industry has entered a high-quality development stage. In the future, with the improvement of efficient processing demand and NC rate, the cemented carbide NC blade industry is expected to maintain growth. Moreover, the CNC blade has a high technical content and is occupied by foreign manufacturers all year round. In the post epidemic era, due to the obstruction of overseas supply and the progress of domestic technology, the domestic replacement is in progress.
Shareate Tools Ltd(688257) is a leading enterprise in the field of subdivided products in the field of mining cemented carbide tools. It is an endogenous extension to build an integrated platform company of cemented carbide industry chain. The company is mainly engaged in the R & D, production and sales of cemented carbide and tools. The market share of rock bit, a fist product, ranks first in China, third in Australia and South America, and the output of cemented carbide ranks first in China. The global annual market space of rock drilling tools exceeds 40 billion. With the help of its fist product cone bit, the company has certain technical advantages and market position in the field of rock drilling tools, and will expand new products + new markets + new regions in the future. The layout of cemented carbide field is comprehensive. The downstream involves three fields: mining, cutting and wear resistance. Endogenous epitaxial diversified development creates a tool platform. With the release of production capacity of IPO raised investment projects, the company’s business is expected to enter a period of rapid development.
Profit forecast and investment suggestions: regardless of the impact of the acquisition, we expect the company to achieve operating revenue of 931 million, 1289 million and 1641 million from 2021 to 2023, and net profits attributable to the parent company of 158 million, 232 million and 312 million, corresponding to EPS of 171, 250 and 336 yuan, corresponding to pe35, 24 and 18 times, maintaining the “recommended” investment rating.
Risk tips: acquisition and integration risk, goodwill impairment risk, downward growth rate of manufacturing investment, lower than expected market promotion of new products, lower than expected ramp up speed of production capacity, and intensified market competition.
