Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) (688059)
Focus on CNC blade manufacturing, with high performance growth and excellent profitability
Focusing on the cemented carbide NC blade business, the company has formed a complete product technology system in the fields of turning, milling and drilling, and the products are at the leading level in China in terms of machining accuracy and efficiency. In 2020 and 2021q1-3, the CNC blade output of the company is 57.97 million and 62.07 million respectively, and the scale is in the first echelon in China. From 2017 to 2020, the compound growth rate of the company’s revenue and net profit attributable to the parent company was 32.54% and 42.13% respectively. In 2021q1-3, the revenue and net profit attributable to the parent company increased by 62.68% and 98.32% respectively year-on-year. At present, it is in a period of rapid growth. At the same time, the company’s profitability is excellent. The gross profit margin and net profit margin in 2021q3 are 51.18% and 33.89% respectively, an increase of 1.37pcts and 10.57pcts compared with 2017.
The industry breeds growth opportunities, and the company expands its production to meet the golden period of development
Under the dual influence of trade friction and epidemic situation, high-end customers represented by military industry, aerospace and other fields have strengthened their willingness to try domestic tools to ensure the safety of the supply chain, which has brought growth opportunities for Chinese CNC blade enterprises. In 2020, the domestic replacement space in China’s tool market will be about 13 billion yuan, and Chinese tool enterprises still have large domestic replacement space. The company pays close attention to the industry opportunities and plans to expand production. After the completion of the IPO raised investment project, the annual production capacity will be increased by 30 million cemented carbide NC blades, 5 million cermet blades and 2 million overall cemented carbide tools. After the completion of the convertible bond project, the annual production capacity will be increased by 500000 CNC tool bodies and 1.4 million efficient drilling tools. In recent years, the company has strong product demand and basically maintained overload production. Capacity expansion will break the capacity bottleneck and bring continuous growth of the company’s revenue.
The new capacity is oriented to high-end areas, the supporting capacity of complete solutions is enhanced, and the overall added value is improved
The company’s new NC blade production capacity will extend to non-standard, special-shaped finishing and other fields, which is expected to increase the proportion of high-end downstream application fields such as aerospace and rail transit. The company expects that the average price of cemented carbide and cermet NC blades will be 9.86 yuan / piece and 9.2 yuan / piece respectively in the first year after production, which is significantly higher than the average price of about 6 yuan / piece in 2020, It is expected to create a “simultaneous increase in volume and price” of CNC blades. At the same time, the company’s new production capacity includes cutter head, cutter rod and other supporting products. Matching with NC blade will improve the service life, stability and other performance of NC blade. Superimposing the company’s gradually expanded product categories (New cermet blades, efficient drilling tools, etc.), it is expected to improve the company’s ability to provide complete solutions and enhance the added value of the overall product.
Investment advice and profit forecast
It is estimated that the net profit attributable to the parent company from 2021 to 2023 is expected to be RMB 155 million, RMB 226 million and RMB 317 million respectively, corresponding to the current pe42x, 29x and 21x. Considering the growth space of the cutting tool industry, the continuous expansion of the company’s production capacity and the continuous enrichment of product lines, it is expected to provide solutions for high-end market customers in the future, maintain high 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.
