\u3000\u3 Guocheng Mining Co.Ltd(000688) 308 Oke Precision Cutting Tools Co.Ltd(688308) )
Key investment points
Starting from cemented carbide products, it has grown into a domestic leader in CNC cutting tools
Oke Precision Cutting Tools Co.Ltd(688308) was founded in 1996. At the beginning of its establishment, it focused on cemented carbide products. Later, its business extended to CNC tools and gradually grew into one of the domestic leaders of CNC tools. At present, the company’s cemented carbide saw blades have basically been replaced by domestic products. After long-term R & D and accumulation, cemented carbide CNC blade products such as turning and milling have also begun to enter China’s medium and high-end market long occupied by Europe, America, Japan and South Korea, and are in a period of rapid volume. From 2017 to 2021, the company’s revenue CAGR = 18.2% and the net profit attributable to the parent CAGR = 37.9%, of which the revenue in 2021 was RMB 990 million (year-on-year + 41%) and the net profit attributable to the parent was RMB 222 million (year-on-year + 106.8%). In the case of a sharp rise in the price of raw materials, the gross profit margin reached 34.4% (year-on-year + 2.9pct); The net profit margin of sales was 22.4% (year-on-year + 7.1pct), and the profitability was continuously enhanced.
Import substitution accelerated, and domestic enterprises penetrated into the medium and high-end market
Knife has obvious consumption attribute, the market demand is less affected by periodic fluctuations, and the scale of the industry is relatively stable. In 2020, the global tool market will be nearly 250 billion yuan, and the scale of China’s market will be about 40 billion yuan.
From the perspective of competition pattern, European, American, Japanese, Korean and Chinese enterprises are divided into three parts of the world. European and American enterprises mainly provide customers with overall solutions, relying on strong technical strength, monopolize the high-end tool market with high precision requirements; Japanese and Korean enterprises dominate the field of medium and high-end non customized cutting tools, with strong product versatility and high cost performance; Chinese enterprises mainly focus on medium and low-end products, but gradually penetrate into the medium and high-end market in Japan and South Korea. With the technological breakthrough and the improvement of cost performance, Chinese enterprises have gradually penetrated into the medium and high-end tool market. China’s consumption of imported cutting tools decreased from 37.2% in 2016 to 31.1% in 2020, and its dependence on imports continued to decline.
Cemented carbide + CNC cutting tools double blossom, releasing production capacity and opening up growth space
1) cemented carbide: with technology and customer resources, the company is the largest supplier of cemented carbide serrations in China. 1) Strong technical accumulation: relying on years of accumulation, we have independently developed advanced products such as industrial sawtooth blade and ultra-fine and ultra-thin integral disc milling cutter blank. 2) High quality customer resources: the company has established long-term and stable cooperative relations with famous tool enterprises at home and abroad, such as Baide tools, Leke and Jintian saw industry.
2) CNC cutting tools: through university cooperation and years of accumulation, the company’s four core technologies of CNC blades are leading in China, and the product performance has been basically the same as that of Japan and South Korea. At the same time, we continued to increase the size of research and development, carried out product innovation, and achieved good results in improving selch brand and enriching milling cutter brands. In addition, the two pronged distribution + OEM / ODM direct sales model is expected to further open up market space.
IPO raised investment + Industrial Park project opens the bottleneck of production capacity. ① IPO project: 40 million high-end CNC cutting tools project has entered the production capacity climbing period, and we expect to release half of the production capacity in 2022; ② Industrial Park Project: it is proposed to raise an additional 800 million yuan for the investment and construction of the industrial park and supplement working capital. After the completion of the project, the company’s tool product series will be improved and the development of the overall solution will be accelerated. The company expects that the two major projects will contribute a total annual income of 900 million yuan and a net profit of 205 million yuan.
Profit forecast and investment rating: as the leader of domestic cutting tools, the company’s performance is expected to be realized quickly under the release of production capacity. We estimate that the net profit attributable to the parent company from 2022 to 2024 will be 297 / 419 / 504 million yuan, and the current share price corresponds to 17 / 12 / 10 times of PE, which is rated as “overweight” for the first time.
Risk tips: macroeconomic fluctuations, technology and product research and development are less than expected, and market competition is intensified.
