\u3000\u3000 Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) (688059)
Key investment points
Event: the company released the performance forecast for 2021. It is estimated that the net profit attributable to the parent company will be RMB 157-167 million in 2021, with a year-on-year increase of 76.4% – 87.6%; The net profit after deduction of non parent company was 147-157 million yuan, with a year-on-year increase of 66.4% – 77.7%. The company’s performance maintained rapid growth, in line with our expectations.
Capacity improvement + domestic substitution promote the rapid growth of the company’s performance. In 2021, the company’s performance maintained rapid growth mainly for two reasons: 1) the company expanded the production capacity of NC blades on a large scale, greatly increased the supply capacity of NC blades, and actively focused on improving the performance of NC blade products, so as to lay a prerequisite for the company to realize the replacement of domestic tools; 2) Downstream end customers are increasingly willing to choose domestic tools, that is, the demand for domestic tools is growing, and the covid-19 epidemic has boosted the end customers’ choice of domestic tools under objective conditions.
It is planned to issue convertible bonds to raise funds, expand product types, and steadily improve the company’s comprehensive service capacity. The issuance of the company’s convertible bonds has been accepted by the Shanghai Stock Exchange. It plans to raise 400 million yuan to expand 500000 precision CNC tool bodies and 1.4 million high-efficiency drilling tools. Combined with the cermet blades and integral milling tools built with the company’s IPO funds, the company’s product series has been continuously expanded, the comprehensive service capacity has been continuously improved, and the competitiveness of products and services has been steadily enhanced, It is expected to become a world-class comprehensive service provider of cutting tools.
China’s cutting tool consumption is expected to continue to grow, and domestic substitution will continue to promote. As consumables in the manufacturing process, industrial tools have an important impact on the quality and performance of products processed and produced. With the steady upgrading of China’s manufacturing industry and the continuous improvement of the penetration rate of CNC machine tools, the consumption scale of industrial tools has increased steadily. Zhuzhou Huarui Precision Cutting Tools.Co.Ltd(688059) and other leading Chinese tool enterprises have made great strides in terms of production capacity, tool performance and brand awareness. They will also complete their own transformation in the process of continuously promoting the domestic substitution of industrial tools.
Profit forecast and investment suggestions. We adjusted the company’s net profit attributable to the parent company from 2021 to 2023 to RMB 163 million, RMB 234 million and RMB 295 million respectively, and the compound growth rate of net profit attributable to the parent company in the next three years will be 49.1%. Considering the high technical barriers of products, the high prospect of the industry and the high performance of the company and the strong certainty of growth rate, we should enjoy the valuation premium, give 40 times PE in 2022 and the target price of 212.40 yuan, and maintain the “buy” rating.
Risk tip: manufacturing investment has fallen sharply; The company’s capacity expansion is lower than expected; The industry competition pattern has deteriorated.
