Conclusions and Suggestions:

The company is one of the very few innovative enterprises in China with high-end CNC system and five-axis linkage CNC machine tool dual R&D system, and has laid out cutting-edge industries such as aviation, aerospace and new energy vehicles with rapid development in China. The company has achieved self-research and self-production of many core components such as CNC systems and electric spindles, and its business gross profit margin is ahead of its peers. We are optimistic about the company's leading edge in CNC machine tools, covering it for the first time, and giving investment advice on "buying".

The company is deeply engaged in the high-end CNC machine tool business, and its revenue and profits have maintained rapid growth: the company was established in 2008 and launched a self-made high-end CNC system; In 2009, supported by the national 04 special policy, the company positioned the research and development of high-end five-axis linkage CNC machine tools, as well as the development of core functional components such as motors and spindles. As of 2024, the company has formed a high-end CNC machine tool product matrix, including four general machining centers (five-axis vertical, five-axis horizontal, five-axis horizontal milling-turning compound, five-axis gantry machining center) and four special machining centers (five-axis tool grinding center, five-axis blade machine, high-speed blade tip grinding center, six-axis five-linkage blisk machining center); In terms of product layout, there are not only high-end KD series for the military field, but also the cost-effective Dechuang series for the civilian field. At present, the company's products have been widely used in the rapid development of domestic aerospace, new energy vehicles and other cutting-edge industries, fully benefiting from the wave of domestic manufacturing upgrading. According to the calculation of the performance express data, the company's revenue increased from 75 million yuan to 605 million yuan from 2017 to 2024, with a CAGR of 34.9% during the period, of which the revenue of high-end CNC machine tool business accounted for more than 90%, and the gross profit margin remained at the level of 42%. Thanks to the rapid growth of the revenue side and the high gross profit margin of the machine tool business, the company's net profit attributable to the parent company increased from 0.07 billion yuan in 2017 to 130 million yuan in 2024, with a CAGR of 51.6% during the period.

Domestic high-end manufacturing upgrade + equipment update, promote the upward development of the five-axis CNC machine tool industry: the company's core product - five-axis linkage CNC machine tool is the spire of high-end CNC machine tools, with the ability to process multi-line, special-shaped surface and other workpieces, is the only means to solve the aircraft engine impeller, blades, marine propellers and other processing. At present, China's manufacturing industry is gradually transforming to high-end, which will drive the upward development of the five-axis CNC machine tool industry. Taking the aviation industry as an example, as of 2024Q3, the number of civil aviation transport aircraft in China has reached 4,352, and according to COMAC's forecast, China's air transport market will receive 9,323 jetliners from 2024 to 2043, and China is expected to become the world's largest single air transport market. With the launch of domestic aircraft C919 and ARJ21, and the migration of the global aviation manufacturing industry to China, the domestic aviation industry chain will usher in a golden period of development. The production of engine blades, vortex rotors, front and rear fuselages, wings and other components is highly dependent on five-axis linkage CNC machine tools, which will also promote the upward development of the domestic five-axis CNC machine tool industry. In addition, in April 2024, the Ministry of Industry and Information Technology issued the "Implementation Plan for Promoting the Renewal of Equipment in the Industrial Field", which also boosted the demand for the renewal of machine tool stock and helped the transformation of traditional industrial machine tools to CNC machine tools. Judging from the data of the National Bureau of Statistics, the year-on-year growth rate of metal cutting machine tool output in the month has bottomed out since March 2024, with a year-on-year increase of 10.5% year-on-year, an increase of 4.1pcts compared with the growth rate in 2023, and the industry cycle is expected to rise.

The domestic high-end machine tool industry is facing a "stuck neck", and the company's products can be replaced by localization: the localization rate of domestic high-end machine tools is less than 10%, and core components such as high-end CNC systems also rely on imports.

In recent years, Western countries have controlled the export of high-end machine tools and high-end CNC systems in accordance with the "Batumi Agreement" and the "Wassenaar Agreement", which has led to the problem of "stuck neck" in the production of strategic equipment of important domestic enterprises. The company is one of the very few innovative enterprises in China with a dual R&D system of high-end CNC machine tools and high-end CNC systems, and has also achieved domestic substitution in cutting-edge products. Taking the high-speed blade tip grinding center used to process the blade tip of an aircraft engine as an example, the company's KBTG 1000 has equaled the DANTIP-R3 of the international leader Danobat in terms of grinding length, workpiece length, spindle speed, grinding wheel frame rotation range and other performance parameters, and the price is only 1/2-2/3 of Danobat, which is expected to achieve domestic substitution. In addition, the company has basically achieved independent and controllable core components, and the autonomy rate of five-axis linkage CNC machine tools has reached 85%. Among them, the high-end CNC system is the control core of high-end CNC machine tools, and the company's self-developed GNC series of high-end CNC systems have achieved several iterations of GNC 60/61/62, which can benchmark against Siemens' competing products 840D, and has more advantages in openness, adaptability and cost performance, and has achieved external sales.

The company's core components are independent and controllable, and the gross profit margin is higher than that of the same industry: In recent years, the company's gross profit margin has been maintained at the level of 42%, which is much higher than the level of the industry (the average gross profit margin of listed machine tool enterprises in 2024Q1-Q3 is 25.4%), on the one hand, because the company's products are all high-end five-axis linkage CNC machine tools, with an average price of more than 1.8 million yuan/unit, which is higher than that of similar enterprises; On the other hand, the high-end CNC system accounts for about 20%-40% of the cost, and the company has saved a lot of copyright costs with its self-developed GNC series, and the core functional components such as motors, motor spindles, and milling heads have also achieved independent control. In terms of expenses, in the first three quarters of 2024, the company's expense ratio during the period was 20.69%, a year-on-year decrease of 3.05pcts, and in terms of items, the sales, management, R&D, and financial expense ratios changed by -2.23, -0.68, -0.28, and +0.14pcts year-on-year respectively, and the cost control effect was significant. In terms of profitability, according to the performance express report data, in 2024, the company will achieve a net profit of 100 million yuan after deducting non-profits, YOY+36.8%; The net profit margin attributable to the parent company was 17.4%, an increase of 0.4 pcts year-on-year.

The company is full of orders and will continue to expand production in the future: Thanks to the strong demand in aerospace and other fields, the company will sign a new order amount of YOY+24% in 2024, and the order growth is significant, and we estimate that the company's production capacity will gradually approach saturation. In order to expand production capacity, the company will complete a fixed increase of 600 million yuan in 2024, and will build manufacturing bases in Dalian, Shenyang and Yinchuan, and allocate the production capacity layout of different types of high-end five-axis machine tools and core functional components. The new production line is expected to be put into use in 2025, and the company's total production capacity will reach about 1,100 units (about 500 units in 2024) by 2028, which will help the company continue to expand its market share and increase its revenue scale and profitability.

Profit forecast and investment suggestions: It is expected that the company will achieve net profit of 130 million yuan, 160 million yuan and 220 million yuan in 2024-2026, yoy is +28%, +25% and +34% respectively, EPS is 1.2 yuan, 1.6 yuan and 2.2 yuan, and the PE corresponding to the current A stock price is 60 times, 48 times and 36 times respectively.

Risk warning: industry competition is intensifying, overseas supply chains are interrupted, overseas market development is not smooth, and the manufacturing industry is declining