\u3000\u3 Guocheng Mining Co.Ltd(000688) 308 Oke Precision Cutting Tools Co.Ltd(688308) )
Investment logic
The company focuses on cemented carbide tools and creates a leading CNC blade enterprise in China: the company is the largest sawtooth blade enterprise in China. In 2011, the company extended to the field of CNC blades. In 2021, the company’s CNC blade output reached 80.97 million, and is in the first echelon of China with Zhuzhou diamond and Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) diamond. From 2017 to 2021, the compound growth rate of revenue and net profit attributable to parent company was 23.32% and 48.7% respectively. The performance growth rate further accelerated in 2021, and the revenue and net profit attributable to parent company increased by 41.04% and 106.82% respectively. In 2021, the scale effect of the company’s capacity expansion appeared. At the same time, the product structure was optimized and upgraded, and the profitability was greatly improved. The gross profit margin and net profit margin were 34.38% and 22.44%, up 2.93 and 7.14 PCTs year-on-year respectively.
The domestic substitution space for cemented carbide cutting tools is nearly 10 billion yuan, and the domestic substitution will be accelerated in 2021: according to our calculation, the market scale of China’s cemented carbide cutting tools will be 22.3 billion yuan in 2020. The output of China’s CNC metal cutting machine tools will increase by 40% year-on-year in 2021, and the demand for cutting tools is expected to continue to grow. In 2021, China’s imports of cemented carbide blades amounted to 4.011 billion yuan, a year-on-year decrease of 8.21%; The export volume was 1.655 billion yuan, a year-on-year increase of 39.31%, making significant progress in replacing imports and increasing exports. In 2021, the total import volume of China’s blades / milling cutters / drill bits / tapping tools was 8.1 billion yuan. Considering that some overseas enterprises set up factories in China and did not include the import data, we judge that the domestic substitution space of cemented carbide tools is nearly 10 billion yuan. In 2021, the import unit price of cemented carbide coated blades was nearly four times the export unit price, and there was still a large gap between the price of Chinese cutting tools and overseas ones. According to our calculation, the market share of Zhuzhou Diamond, Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) , Oke Precision Cutting Tools Co.Ltd(688308) and Oke Precision Cutting Tools Co.Ltd(688308) in the field of cemented carbide cutting tools in 2020 was 7.5%, 1.4% and 1.4% respectively. It is expected to continue to increase the market share through the two dimensions of “volume” and “price”.
Expand production capacity, expand categories, strengthen the supporting capacity of solutions, and the product structure is expected to be continuously optimized: the company’s IPO raised 40 million pieces of high-end NC blade project is expected to reach more than 50% of the production in 2022. We estimate that the company’s NC blade production is expected to reach 100 million pieces in 2022, with a year-on-year increase of about 24%. Considering that the company has certain R & D reserves, 2000 kinds of NC blade products will be added in 2021, and the price is greater than 10 yuan, accounting for more than 40%, Higher than the company’s average price of 5.9 yuan / blade in 2021, the company’s high-end CNC blade production capacity is expected to increase the company’s average price of products, so as to improve profitability. At the same time, in March 2022, the company issued a fixed increase plan, which plans to raise no more than 800 million yuan. The wholly-owned subsidiary of the company will invest in the construction of CNC Tool Industrial Park project, with a total investment of 749 million yuan. The company will expand high-performance bars, hardening tools, CNC tools, ceramic blades and other products. In the future, supporting sales in the form of providing solutions is expected to optimize the product structure and improve profitability.
Profit forecast and investment suggestions
From 2022 to 2024, the company is expected to realize a net profit attributable to the parent company of RMB 284 / 371 / 496 million respectively, corresponding to the current pe18x / 14x / 10x. Considering the growth space of the tool industry, while the company’s high-end CNC blade capacity continues to climb, the product structure is expected to continue to optimize and improve profitability. The company is given a 6-12-month target price of RMB 71.09, corresponding to 2022pe25x, and a “buy” rating for the first coverage.
Risk
The progress of domestic substitution is less than expected, the scale expansion of the tool market is less than expected, the capacity expansion is less than expected, and the shareholders reduce the risk.
