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It is a unique enterprise that occupies a unique position in China's machine tool manufacturing industry. Compared to the world-famous Borg machine tool factory, the company stands out with an eye-popping price advantage. In the case of the recent Beijing-Tianjin intercity railway project, the company successfully supplied one Borg aplay grinder, while the other was second-hand equipment purchased from Germany. What's even more striking is that the company achieved staggering net profit growth for three consecutive quarters in 2021, and a year-on-year increase of 112% in the third quarter. Let's dive into this company's core business and competitive advantages.
This company is mainly committed to the research and development, manufacturing and sales of CNC machine tools, ordinary machine tools and key components of machine tools. Among them, CNC products accounted for 79.27% of the total revenue, while ordinary products accounted for 18.38%. It is worth mentioning that the company's CNC machine tools have been widely used in important projects such as the Beijing-Tianjin intercity railway and the Beijing-Shanghai high-speed railway, so it has strong strength in the field of railway infrastructure. However, the company is unique in that it is one of the only companies in the world to have the capacity to produce special grinding machines for Borg plates, while the price of its products is only one-third of that of comparable machines in Germany.
There's no denying that the company's financial performance in 2021 has been impressive. From the first quarter to the third quarter of 2021, it has continuously achieved a leap in net profit. The net profit in the first quarter increased by 152% year-on-year to 4.9895 million yuan, the second quarter achieved a year-on-year increase of 121% year-on-year to 6.7972 million yuan, and in the third quarter, it increased by an astonishing 112% year-on-year to 9.177 million yuan. This performance makes the company rank 37th among the 45 listed companies in the A-share industrial machine tool sector. While the ranking is relatively low, this should not underestimate its size and potential.
Analyzing further, we note that the company performed well in terms of ROE at 15.7%, up 112% year-on-year. This shows that the company is able to quickly turn shareholders' investments into profits. Among the 45 listed companies in the A-share industrial machine tool sector, the company's return on equity ranks fifth, which confirms its excellent profitability.
In addition, the company's cash flow position is also very healthy. In the third quarter of 2020, although the net profit was only 9.177 million yuan, the company's actual net cash earned was as high as 22.3827 million yuan, an astonishing 2531% year-on-year. This means that the company has sufficient cash flow, which enhances the stability of its production and operating activities.
The reasons for the increase in net profit are multifaceted. Through the analysis of DuPont theory, we found that one of the main reasons for the company's net profit growth was the increase in the sales speed of CNC products. Sales velocity is measured by days of inventory turnover, and this metric has improved significantly in recent years. In the third quarter of 2020, it took the company 536 days to sell a batch of CNC equipment inventory, and now it takes only 339 days, an increase of 37% in sales speed. This not only increased the company's revenue, but also led to the growth of performance.
Another contributing factor was the significant reduction in sales collection time, which was one of the reasons for the significant increase in the company's net cash flow. The sales collection time is a measure of the sales account period of the product, which is expressed by the number of days of accounts receivable turnover. In the third quarter of 2021, the business reduced its sales collection time by 61%. This means that the company recovers its sales payments more quickly, helping to improve cash flow.
However, despite the company's impressive performance, there are some shortcomings that require investors to be wary of. By analyzing the main financial data, we found that the company's gross sales margin decreased slightly. In the third quarter of 2020, the gross sales margin was 19.51%, while in the third quarter of 2021, this figure fell to 19.09%, a year-on-year decrease of 2%. The decline in gross sales margin may affect the profitability of CNC products, which will have a negative impact on the company's net profit and performance growth. Among the 45 listed companies in the A-share industrial machine tool sector, the company's gross profit margin ranked 39th, which shows its lack of profit margins.
All in all, the company excels in the field of machine tool construction and has a huge market potential. Although declining gross sales margins are an issue, its strong cash flow, excellent return on equity, and consistently growing net profit suggest that this is a business to watch. However, it's important to remember that good fundamentals don't necessarily lead to a rise in stocks, and those that continue to grow tend to have excellent fundamentals. Invest cautiously and learn more about this business on your own.
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