Shenyang machine tool margins into the rising channel

â—† The proportion of CNC machine tools keeps rising, and the gross profit goes up:

According to the report, operating profit of Shenyang Machine Tool increased by 96.16% year-on-year. The gross profit of common machine tools increased by 3.8%. Under the environment of common machine tools and fierce competition, raw material costs increased, showing Shenyang Machine Tool's strong brand technical strength. The proportion of CNC machine tools increased from 61% last year to 63%, and the numerical control rate has been rising. The company plans to achieve a numerical control rate of 80% in 2015, and all ordinary machine tool products will go out of OEM. By combining the two, the company's consolidated gross profit is expected to increase from the current 18% to 23% in the next few years.

With sufficient orders, the management strengthened its profit assessment indicators, and performance was expected to continue to be full of orders in the first half of the year. Advance receipts maintained rapid growth, which was a 150% increase year-on-year and a positive quarter-on-quarter increase for five consecutive quarters. To lay a solid foundation for the second half of the year.

Shenyang Machine Tool has strengthened its profit assessment indicators this year and has formulated specific profit assessment indicators for each business unit, shifting from simple pursuit of scale to both scale and efficiency. At the same time, it managed the cash flow of the business division. In the second quarter of 2011, the operating cash flow was 208 million, which was the highest level in the past five years.

â—† Different from the market view: The gap between machine tools at home and abroad is accelerating and the leading companies are making efforts to achieve high-end:

Different from the market point of view: We believe that the gap between machine tools at home and abroad is accelerating. The good industrial foundation brought about by the heavy industrialization, the upgrading demand of products, and the country’s emphasis and strong support for basic components and parts will make domestic CNC machine tools accelerate the catch-up and advanced. The industry survey report shows that nearly 70% of respondents in the industry believe that the gap between domestic and international machine tools is shrinking, and 17.5% believe that the gap has narrowed. As a CNC machine tool manufacturer with the most brand influence in China, Shenyang Machine Tool has a clear strategy and favorable external environment. During the “12th Five-Year Plan” period, it will receive the country’s key support and will benefit most from the high-end market trends of domestic CNC machine tools.

â—† Valuation and Rating:

The company's EPS forecast for 2011 to 2013 is 0.5, 0.7, and 0.95. The valuation of the machine tool industry is 30 times. Considering that the company's performance has entered a rising channel, the compound growth rate will exceed 40% in the next three years. We give the company 35 times PE in 2011 with a 6-month target price of 17.5 yuan and a buy rating.

â—† Risk Warning:

The economic growth rate has been significantly lower, and the continuing high CPI has resulted in the tightening policy lasting longer than expected.