\u3000\u3 Guocheng Mining Co.Ltd(000688) 257 Shareate Tools Ltd(688257) )
Key investment points
Compound expectation on the revenue side and repair space on the profit side
In 2022q1, the company's revenue was 278 million yuan, a year-on-year increase of + 30% and a month on month increase of + 22.5%; The net profit attributable to the parent company was 36.91 million yuan, a year-on-year increase of + 2% and a month on month increase of + 6.4%; Net profit deducted from non parent company was 27.6 million yuan, with a year-on-year increase of - 17.8% and a month on month increase of + 11.4%. Q1's revenue side met expectations, while the profit side grew less than expected, mainly due to the decline in profitability. Q1's gross profit margin was 31.2%, year-on-year -6.1pct, month on month -2.3pct, and net profit margin was 14.5%, year-on-year-4pct, month on month -2.3pct. We judge that multiple factors lead to pressure on the company's profit margin:
\u3000\u30001. The price of Q1 raw material tungsten carbide has increased significantly, accounting for 70% of the cost of the company's cemented carbide products business, which has put great pressure on the cost, and there is a certain time difference in the price increase of the company's products. We expect that the gross profit margin of Q2 is expected to be repaired with the increase of the company's product price.
\u3000\u30002. The relocation of the company's Wuhan plant was completed at the end of 2021. Q1 is still in the stage of personnel recruitment and training. The capacity utilization rate is relatively low, and the manufacturing expenses are high due to depreciation, labor and other expenses. We judge that with the gradual ramp up of Q2 Wuhan plant capacity, the scale effect is expected to gradually highlight.
3. Since 2021q4, the exchange rate of US dollar against RMB has continued to decline. More than 50% of the company's revenue comes from exports and is denominated in US dollars, which directly affects the gross profit margin. We judge that with the recovery of exchange rate, the gross profit margin of the company's export business is also expected to improve.
4. In 2021q1, due to non recurring factors such as impairment reversal, the scale of net profit is the highest in the year, so the base is also relatively high.
In addition, the expense rate during Q1 was 15.73% (year-on-year + 0.07pct), of which the expense rates of sales / management / R & D / finance were 2.77% / 8.29% / 4.67% / 0.06% respectively, which were -0.7pct, + 0.56pct, + 0.21pct, + 0.6pct respectively year-on-year, basically stable. Using idle funds to purchase financial products contributed 9.86 million yuan of non recurring profits and losses.
Contract liabilities are at an all-time high and the demand for orders is full
At the end of Q1, the company's contractual liabilities amounted to 4.4 million yuan (an increase of 58% over 21q4), which was at an all-time high and the demand for orders was strong; The inventory balance was 370 million yuan (an increase of 19.2% month on month in 21q4). The company's net cash flow from operating activities decreased to - 67.87 million yuan, mainly due to: 1) the increase of accounts receivable and inventory caused by the growth of operating income; 2) Endorsement of notes receivable is used to pay for the purchase of fixed assets; 3) The performance appraisal bonus of the previous year will be paid in this quarter.
Mining cemented carbide leader with global competitiveness, capacity expansion + business expansion can be expected
It is expected that BHP will further expand its production capacity from 20.21 million sets of drilling bits in India and other key regions to 20.21 million sets of drilling bits in Africa by the end of the year; The relocation of cemented carbide products plant is completed, and the production capacity will gradually climb to 1800 tons / year; (2) New products & new fields: the company will expand new impactor and top hammer drilling tools on the basis of cone bit; At the same time, it will also expand the lateral application of cone bit in infrastructure and petroleum fields; (3) Business expansion: the acquisition of Zhuzhou Weikai layout CNC tool business is expected to follow the growth path of Sandvik's independent research and development + epitaxial acquisition, develop into China's Cemented Carbide leader, and gradually expand overseas.
Profit forecast and investment rating: considering the pressure on the company's profitability, we expect the net profit attributable to the parent company from 2022 to 2024 to be RMB 181 (down 11%) / 2.57 (down 8%) / 352 (down 5%). The current share price corresponds to 16 / 11 / 8 times of PE, maintaining the "overweight" rating.
Risk warning: the downstream demand is less than expected, the overseas market is uncontrollable, and the price fluctuation risk of raw materials
