\u3000\u3000 Zhejiang Jw Precision Machinery Co.Ltd(300984) (300984)
China’s leading bearing rings, the company’s revenue CAGR is expected to reach 42% from 2021 to 2025
The company focuses on the production of bearing rings. Ferrule revenue and gross profit accounted for as much as 98%. The global bearing ring market scale exceeds 100 billion yuan, and the CAGR is 5% from 2021 to 2025. The global market share of the company will be about 0.6% in 2020. It is expected that the market share will increase to 2.7% by 2025, with an average annual increase of 0.4pct, and the market share CAGR in five years will be 35%. The company’s revenue CAGR is expected to be 42% in the next five years.
In order to ease the pressure on profitability and ensure the safety of the supply chain, the supply chain of the eight bearing factories has accelerated its transfer to China
SKF, Schaeffler, NSK and other eight bearing plants have a global bearing market share of 70%, and their supply chain is accelerating the transformation to China and light assets: 1) the profitability of the eight bearing plants is poor, and the growth of long-term capital expenditure is stagnant. The average net interest rate decreased from 5.8% in 2017 to 1.8% in 2020. In 2020, the average capital expenditure showed negative growth for the first time, with a year-on-year decrease of 26%; 2) The quality of China’s bearing steel has reached the world-class level, there are sufficient skilled workers, the raw materials and labor costs have advantages, and it has the foundation to undertake the transfer of the industrial chain.
Competitive advantage of the company: it is an excellent supplier of the top five bearing factories in the world, with strong R & D supporting ability
1) the company is well recognized by customers in terms of product quality control and customer demand response. It is the only ferrule enterprise in China that gathers excellent suppliers from the world’s top five bearing factories; 2) The company has two doctoral teams, which are respectively responsible for the R & D of heat treatment and production testing equipment, and can cooperate with customers in product R & D and upgrading.
Market share promotion path: develop new customers, follow old customers to expand production across regions, and improve product coverage
1) new customer development: Timken, bueryue and other excellent enterprises among the eight major enterprises, as well as Luozhou shaft, tile shaft and other excellent enterprises of China bearing factory will become target customers; 2) Follow old customers to expand production across regions: establish Yinchuan Jinwo water test cross regional production. At present, SKF has 91 factories worldwide and Schaeffler has 75 factories worldwide. The company is expected to follow its global expansion; 3) Increase the research and development of new processes and expand the category of bearing rings.
Profitability improvement path: extend to the front and rear processes of ferrule production, and the net interest rate can be increased 6-7pct
From 2018 to 2020, the average gross profit margin is 22%, and the average net profit margin is about 10.6%. Extending forward to forging processing, the net profit rate can be increased by 2pct, and extending backward to heat treatment and fine grinding, the net profit rate can be increased by 4-5pct at most. Overall, the company’s net interest rate has 6-7pct increased at most, and the net interest rate is expected to reach more than 15% in the future.
Profit forecast and valuation
It is estimated that the net profit from 2021 to 2023 will be 70 million, 140 million and 220 million respectively, with a year-on-year increase of 14%, 109% and 61%, corresponding to 48 times, 23 times and 14 times of PE. Give the company 35 times PE in 2022, corresponding to the target price of 100.5 yuan / share, an increase of 52% from the current price. For the first time, give the company a “buy” rating.
Risk tips: 1) risk of raw material price change; 2) Risk of continued deterioration of covid-19 epidemic
