Investment summary:
The development of cutting tool manufacturing level is of great significance to the development of machine tool industry. Cutting processing accounts for about 90% of the whole machining workload, which is the most basic link in the machinery manufacturing industry.
As the teeth of industrial machine tools, cutting tools are one of the most important core parts of all kinds of machine tools. Although the tool cost only accounts for 1% – 5% of the production cost of a single part, the performance of the tool will directly restrict the development of the machine tool in the direction of high speed, high precision and high efficiency. As the downstream of the new material industry and the upstream of the new equipment industry, the tool manufacturing industry is also the key layout field for the country to implement the manufacturing power strategy. Modern cutting tools characterized by high precision, high reliability and high efficiency play an irreplaceable key role in the modern manufacturing system.
The market space of cutting tool industry is broad, and Chinese enterprises break through upward. Upstream tool materials: cemented carbide materials are more widely used in tools because of their high hardness, high wear resistance, low cost and high cost performance, accounting for more than 60% in the world and more than 50% in China. China’s cemented carbide industry started later than the developed countries in Europe and the United States. Through the long-term digestion and absorption after the introduction of technology, the gap between the industry development level and foreign countries continues to narrow, laying a foundation for cemented carbide cutting tools to move towards medium and high-end. Midstream cutting tool industry: the industry pattern is relatively scattered, but from the development path of cutting tool industry in developed countries, due to the high barriers of cutting tool industry, a pattern of high industry concentration will eventually be formed. At present, the cutting tool market is in the leading echelon, and there are few brands made in China, which is subject to the technical level that China’s machine tool production is still at the middle and low end. Under the background of self-control and industrial upgrading, the tool industry as a whole is gradually moving towards high-end and centralization: on the one hand, the technology is catching up quickly, especially in the middle-end products, the cost performance of some products has surpassed the original leading Japanese and Korean enterprises, and the process of domestic substitution has accelerated; On the other hand, the high-end development also brings further improvement of industry barriers, and the subsequent tool industry will become more and more concentrated, with a few industry leaders. Downstream market space: as the core component of machine tools, cutting tools are applied in many fields such as automobile, general machinery, mould, engineering machinery, aerospace and so on. China’s machine tool consumption has ranked first in the world for many years. By 2019, China’s tool consumption was 39.3 billion yuan, accounting for 25% of machine tool consumption. Compared with the proportion of about 50% in developed countries every year, China’s tool consumption still has a lot of room to improve.
Compared with developed countries, China’s machine tool control rate is still low, and the improvement of NC rate is good for NC tools. Compared with developed countries in the world, the NC rate of machine tools in Japan is more than 90%, that in Germany is more than 75%, and that in the United States is more than 80%. In contrast, the CNC rate of machine tools in China has continued to increase in recent years, from 7.79% in 2000 to 41.11% in 2021, but there is still much room for improvement in the high CNC rate of more developed countries. CNC cutting tools will benefit directly as the teeth of CNC machine tools.
Investment strategy: as the teeth of industrial machine tools, cutting tools will make great progress as China’s machine tool industry moves towards high-end, with broad space in the future. After conquering the technology related to cutting tools, Chinese enterprises have closely followed Europe, America, Japan and South Korea in product performance and entered the medium and high-end market. We continue to be optimistic about the logic of domestic substitution and numerical control rate improvement in the tool industry. Companies such as China Tungsten And Hightech Materials Co.Ltd(000657) , Oke Precision Cutting Tools Co.Ltd(688308) driven by cemented carbide serrated blade and numerical control tool and Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) focusing on cemented carbide numerical control tool are expected to benefit directly.
Risk tips: macroeconomic downturn, less than expected development of CNC machine tools, less than expected capacity expansion, and intensified market competition.
