Huarui Precision(SH:688059) Southwest Securities·2024-11-03 06:06Investment Rating - The report maintains a "Buy" rating for the company with a target price of 68.40 CNY over the next six months [1][2]. Core Views - The company reported a revenue of 585 million CNY for Q1-Q3 2024, a year-on-year decrease of 0.52%, and a net profit attributable to shareholders of 77 million CNY, down 27.06% year-on-year. In Q3 2024, revenue was 174 million CNY, down 24.46% year-on-year and 27.52% quarter-on-quarter, with a net profit of 5 million CNY, down 88.17% year-on-year and 90.65% quarter-on-quarter [1][2]. - Weak domestic demand has led to insufficient capacity utilization, resulting in a slowdown in performance growth for Q3 2024. The CNC tools are cyclical products, and the lack of downstream demand has pressured the company's revenue and profit margins [1][2]. Financial Summary - Gross margin for Q1-Q3 2024 was 39.64%, down 4.45 percentage points year-on-year, while the net profit margin was 13.18%, down 4.80 percentage points year-on-year. In Q3 2024, the gross margin was 32.68%, down 10.29 percentage points year-on-year, and the net profit margin was 2.94%, down 15.84 percentage points year-on-year [2][6]. - The company has managed its expenses well, with a total expense ratio of 22.06% for Q1-Q3 2024, an increase of 0.37 percentage points year-on-year. The sales expense ratio decreased by 0.12 percentage points to 4.85%, while the management expense ratio decreased by 0.59 percentage points to 4.63% [2][6]. - The company is projected to achieve net profits of 150 million CNY, 210 million CNY, and 270 million CNY for 2024, 2025, and 2026, respectively, with a compound annual growth rate of 20% over the next three years [2][7]. Business Segmentation - The CNC tool segment is expected to see order growth rates of 9%, 17%, and 17% from 2024 to 2026, with gross margins affected by insufficient capacity utilization and rising raw material prices in 2024. A recovery in manufacturing demand is anticipated in 2025, leading to a stabilization in gross margins [6][7]. - The overall tool segment is projected to have order growth rates of 119%, 50%, and 30% from 2024 to 2026, with gross margins expected to improve gradually [6][7].