LK Technology ("LK Tech", or the "Company") signed a huge new order with a customer, and we estimate that it will bring more than HK$1 billion in revenue to the Company. Wencan Group Co., Ltd. ("Wencan") announced that it has signed an equipment procurement framework with the Company's Shenzhen subsidiary, and will purchase 38 large die-casting machines, including three 9000T, one 7000T, four 6000T, eight 4500T, six 3500T, eleven 2800T, and five 2200T sets. Wencan expects that all equipment will be delivered within 2 years. We forecast that these 38 large (including super-large) die-casting machines may contribute more than HK$1 billion in revenue to the Company in the next two years. Based on the gross profit margin of over 30% for large die-casting machines and over 40% for super-large die-casting machines, we forecast that this order may contribute over HK$350 million in gross profit to the Company. The Company's large-scale die-casting machine revenue accounted for more than 70% of the overall revenue of the die-casting machine segment in 1HFY2023. We believe that as the large-scale die-casting machine business continues to grow, the Company's gross profit margin will continue to increase.
Chinese new energy car manufacturers and component manufacturers are actively adopting single-piece die-casting solutions, and the demand for large-scale die-casting machines continues to be strong. The large orders of Wencan showed strong demand for single-piece die-casting parts from Chinese new energy car companies.
　　The single-piece die-casting solution has triggered innovation in the car body manufacturing process, and China's new energy vehicles are active in upgrades to new technology solutions. At present, the application scope of single-piece die-casting has gradually expanded from the front floor and rear floor to battery packs, shock towers, sub-frames and others. With the increase in number of die-casting parts for a single new energy vehicle and the increase in penetration rate of single-piece die-casting solutions, demand for large-scale die-casting machines in the Chinese market may continue to be strong.
　　The Company's traditional business may recover alongside economic recovery, and we expect the Company's performance to improve. Revenue and gross profit of the Company's traditional businesses such as injection molding machines and small die-casting machines experienced significant decline in 2022. However, with adjustments in China's macro policy and the increase of capital expenditure of the manufacturing industry, overall downstream demand will gradually improve. Revenue and gross profit of the injection molding machine business and small die-casting machine business in 2023 may increase, improving the Company’s performance.
Investment suggestion: We believe that the long-term growth logic of LK Tech is solid and we expect short-term performance to improve. We maintain the Company's rating as "Buy", and maintain TP of HK$11.90. We forecast earnings per share in FY23/ FY24/ FY25 to be HK$0.437, HK$0.596, and HK$0.773, respectively. Our TP represents 27.3x/ 20.0x/ 15.4x FY23-FY25 PE ratio.