The Zhitong Finance App learned that SDIC Securities released a research report saying that according to data from the National Bureau of Statistics, China's metal cutting machine tool production from January to April 2024 was 210,000 units, +6.0% over the same period. Continuing the growth trend, but the growth rate narrowed. On the domestic side, demand in the manufacturing industry has improved marginally, and the sustainability of recovery remains to be seen. The main growth in the industry comes from high-end machine tool upgrades and domestic replacement brought about by equipment updates; in terms of overseas machine tools, the overseas machine tool market has broad space and moderate competition, and going overseas has become the focus of domestic machine tool development. In the long run, the continuous introduction of national machine tool incentive policies is expected to help replace high-end machine tools domestically, and they are optimistic about investment opportunities in the domestic machine tool industry chain in the context of autonomy and control.

Recommended attention: 1) New markets: Positioning high-end machine tools, targets with overseas logic. It is recommended to focus on Haitian Precision (601882.SH), Neway CNC (688697.SH), and Homai Technology (002595.SZ). 2) Autonomy and controllability: With the help of the national policy side, domestic machine tool companies are expected to fully benefit under the catalyst of renewal demand and domestic substitution. It is recommended to focus on the direction of autonomy and control. It is recommended to focus on the direction of autonomy and control. The standard for the whole machine is Cod CNC (688305.SH), and the component target is Huazhong CNC (300161.SZ). 3) New applications: The main business is growing steadily, and new applications (such as humanoid robots) provide performance flexibility. It is recommended to focus on Zhejiang Heideman (688577.SH), Huachen Equipment (300809.SZ), and Rifa Seiki (002520.SZ).

The main views of SDIC Securities are as follows:

Summary of the 2023 report and the 2024 quarterly report: Performance continues to be under pressure, and the resilience of companies with a high-end product structure and a relatively high export share is highlighted

1) Market performance: From a fundamental perspective, the manufacturing PMI continued to expand for 2 consecutive months, demand for downstream automobiles and consumer electronics picked up marginally, and the number of gold cutting machine tool shipments in 2024Q1 increased; from the policy side, the Ministry of Industry and Information Technology issued the “Implementation Plan to Promote Equipment Renewal in the Industrial Sector” in April, and the CCMT Machine Tool Show was successfully held in the same month. Demand recovery+theme catalysis, and the sector's year-to-date sector rebound reached 38.49%.

2) Growth aspect: According to sample company statistics, in 2023, the machine tool equipment sector achieved revenue of 37.768 billion yuan, an increase of 1.68% over the previous year; net profit to mother was 3.324 billion yuan, an increase of 39.98% over the previous year. The 2024Q1 machine tool equipment sector achieved revenue of 9.01 billion yuan, an increase of 1.68% year on year; net profit to mother of 899 million yuan, a year-on-year decrease of 6.56%. Affected by factors such as the international environment, geopolitics, and weak investment in downstream equipment, the machine tool sector's revenue and profit growth rate in 2023 was low.

2024Q1 continued this trend, and profit growth declined due to: ① the 2023Q1 macroeconomic marginal recovery brought high base factors; ② intense industry competition, and machine tool price cuts put pressure on gross margins. Looking at the split process, the resilience of companies such as Haitian Precision, Neway CNC, and Haomai Technology, which have a relatively high export share, is outstanding, and the performance growth rate is higher than the industry average.

3) Profitability: Gross margin continues to be under pressure, net margin has improved, and cost control is good. According to sample company statistics, the gross profit margin and net interest rate of the machine tool equipment sector in 2023 were 28.45% and 8.83%, respectively; the gross margin of the 2024Q1 machine tool equipment sector was 27.09%, 0.38 pct year on year, and -2.28 pct month on month; the net margin was 9.90%, -0.85 pct year on year, and +8.27 pct month on month. Gross margin is under pressure in the short term, mainly affected by price wars and low capacity utilization rates in the middle and low end machine tool industry; net interest rates continue to improve, due to machine tool equipment companies' better ability to control expenses and increases in non-recurring revenue such as government subsidies and exchange. The cost rate for the 2023 machine tool equipment sector was 17.61%, +0.29pct year-on-year. Among them, the sales expense ratio, management expense ratio, financial cost rate, and R&D expense ratio were +0.51 pct, -0.36 pct, -0.17 pct, and +0.31 pct, respectively.

4) Order side: Inventory and contract liabilities increased slightly year-on-year. According to sample company statistics, as of the end of the first quarter of 2024, as of the end of the first quarter of 2024, the machine tool sector contract debt+advance accounts receivable was 4.617 billion yuan, +8.50% year over year, and inventory was 17.622 billion yuan, +8.08% year over year, a slight increase over the previous year, which is basically consistent with changes on the revenue side.

Future market outlook: The boom in overseas business continues, and I am optimistic that domestic replacement of machine tools will accelerate

Domestic demand: On the macro side, the manufacturing PMI in April was 50.4%, which was in the expansion range for 2 consecutive months; according to data from the Japan Machine Tool Industry Association, Japan's machine tool orders from China fell 15.7% year-on-year in March, and the continuation of the recovery in domestic demand remains to be seen. On the central side, according to data from the National Bureau of Statistics, China's metal cutting machine tool production from January to April 2024 was 210,000 units, +6.0% over the same period. The growth rate continued to narrow, but the growth rate narrowed. In the future, we will continue to focus on high-end machine tool upgrades and domestic replacement brought about by policy forces such as equipment updates.

Overseas demand: The domestic machine tool market tends to be saturated, competition is fierce in the middle and low end fields, while the overseas market space is broad and the competitive pattern is good. As the product performance of leading domestic machine tool companies continues to be upgraded and iterated, and the combination of cost performance advantages is outstanding, it has become a trend for domestic machine tool companies to go overseas. According to China Customs data, the total import and export volume of machine tool imports and exports in January-February was US$5.0 billion, an increase of 6.2% over the previous year. Among them, imports amounted to US$1.62 billion, a year-on-year decrease of 3.5%; exports amounted to US$3.38 billion, an increase of 14.0% year-on-year. In 2023, Qinchuan Machine Tool, Haitian Precision, Ningbo Jingda, Zhejiang Heideman, and Neway CNC overseas business revenue growth rates were 13.81%/76.06%/40.33%/508.52%/112.99%, respectively, with good export performance. In the future, as the share of high-margin overseas business increases, it is expected that the profitability of machine tool companies will continue to increase.

Risk warning: Macroeconomic downturn risks, increased industry competition, policy progress falls short of expectations, localized replacement of five-axis machine tools falls short of expectations, and statistical samples can only reflect the full picture of the sector to a certain extent, which may cause results to be distorted.