Basic conclusion
The machinery industry showed an obvious phenomenon of “profit growth rate is lower than revenue growth” in 2021. Generally speaking, the machinery industry is an industry with obvious scale effect: in the period of income expansion, through the large-scale production of standard products, the proportion of fixed costs caused by the improvement of capacity utilization is reduced, and the scale effect is prominent. Therefore, from the perspective of scale effect, in the period of substantial income expansion, the growth rate of net profit of Companies in the machinery industry will be higher than that of income. However, according to our statistics, during each round of economic boom, the proportion of positive income growth of machinery companies increased significantly. However, during each round of income expansion, in fact, the proportion of companies whose “net profit growth rate is lower than income growth” increased significantly. Especially in 2021, as of April 19, 2022, among the 202 machinery companies that have disclosed their annual reports, 186 have achieved positive growth in revenue, accounting for 92%; Among the companies with positive revenue growth, 138 companies had lower net profit growth than revenue growth, accounting for 74% of positive revenue growth, significantly higher than that in 2017. We believe that this is mainly due to the pressure on the cost side. The scale effect may not be enough to hedge the sharp rise in the cost of raw materials, so there is a very common state of “increasing income without increasing profit” or “increasing income but only increasing profit slightly”.
The rising cost of raw materials affects the profitability of midstream machinery enterprises. The operating cost of an enterprise is mainly composed of raw material cost, labor cost, manufacturing cost, energy cost, transportation cost, etc. The machinery sector is in the middle of the industrial chain. In the composition of operating costs of machinery companies, raw materials account for more than 60% on average, among which steel accounts for the highest proportion. Under normal circumstances, when the downstream demand of the machinery industry is high and booming, there is often a sharp rise in the price of upstream raw materials caused by economic overheating. In the face of the general rise of upstream raw materials, the market is expected to fluctuate in the good of income expansion and the bad of rising raw material costs. We have counted the cost structure of representative machinery companies. On the whole, raw materials account for a high proportion of operating revenue. Representative construction machinery companies Sany Heavy Industry Co.Ltd(600031) , Xcmg Construction Machinery Co.Ltd(000425) , Zoomlion raw materials account for more than 60% of their revenue; The proportion of Hangcha Group Co.Ltd(603298) and Anhui Heli Co.Ltd(600761) raw materials of forklift representative company in revenue is as high as 70%; Representative companies of lithium battery and photovoltaic equipment Shenzhen United Winners Laser Co.Ltd(688518) , Wuxi Lead Intelligent Equipment Co.Ltd(300450) , Suzhou Maxwell Technologies Co.Ltd(300751) raw materials account for 50% +. Some companies with heavy assets, such as Jiangsu Hengli Hydraulic Co.Ltd(601100) , Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) , Oke Precision Cutting Tools Co.Ltd(688308) , Himile Mechanical Science And Technology (Shandong) Co.Ltd(002595) , Jiangsu Shentong Valve Co.Ltd(002438) , Anhui Yingliu Electromechanical Co.Ltd(603308) and so on, account for less than 50% of raw material income. The price rise of most machinery industries is relatively long, and it is difficult to completely transfer the price rise of raw materials to the downstream industries. Therefore, the rise in raw material prices has led to a significant increase in the proportion of raw material costs, putting pressure on the gross profit margin or inhibiting the release of the scale effect of machinery companies; It has a certain impact on the profitability of the company in the machinery industry.
Scale effect + cost transfer is an important measure to deal with rising costs. The products of the machinery industry are mainly divided into general equipment and special equipment, corresponding to large-scale production and customized production respectively. Scale effect is one of the conventional hedging measures of most general equipment companies against the price rise of raw materials, and a few will raise the price downstream. Most special equipment pricing logic is cost plus pricing mode, and the price is floating in the medium and long term. Generally, after signing the order, the cost is borne by yourself. It takes a complete order cycle before you have the opportunity to adjust the product price and pass on the upstream cost pressure.
Investment suggestion: we believe that the price of raw materials has dropped from a high level this year, and the price rise of some raw materials has been smoothly transmitted, which is expected to thicken the profit space of the industry. First, it is recommended to pay attention to companies with high raw material costs and strong scale effect, and recommend Anhui Yingliu Electromechanical Co.Ltd(603308) , Jiangsu Shentong Valve Co.Ltd(002438) ; Second, it is suggested to pay attention to the companies whose product prices have increased significantly this year, and recommend Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) , Oke Precision Cutting Tools Co.Ltd(688308) .
Risk warning: macroeconomic changes lead to sharp fluctuations in the demand for mechanical products; The price fluctuation of raw materials has an impact on the profitability of machinery enterprises.
