Integrated die-casting solution continues to offer cost advantage to auto　makers. LK believes that the replacement of welding by die-casting will continue, as it helps auto makers achieve: （1） Cost reduction: 40% reduction in capex and 30% decrease in floor area taken by production line; （2） Lightweighting: 10-20% reduction in total car weight, translating into a 14% enhancement in driving range/charging for NEV; and （3） Production efficiency: production cycle is shortened substantially from 120mins to 110- 120s by applying integrated die-casting technology.
　　Estimated market size of ultra-large size die-casting machinery.　According to LK, each ultra-large size die-casting machine can produce ~155k units of component annually. Each NEV generally needs three pieces of large die-casting parts. Assuming 12.5mn units of NEV demand in China in 2025E （according to CMBI auto team）， we estimate the total operating volume of die- casting machines will potentially reach ~300 sets （assuming 80% utilization rate） if integrated die-casting solution is fully applied. The ultra-large size die- casting machinery （6000T and above） market will potentially reach ~RMB19bn by 2025E （based on estimated ASP of RMB63mn）。
　　New production plant to boost capacity growth in FY24E （Mar year-end）。Hangzhou Bay plant is LK’s new production base which is expected to commence operation in Jul/Aug 2023. Upon completion, LK’s monthly capacity of ultra-large size die-casting machine will increase substantially from 2-3 sets currently to 8 sets.
　　Launch of new products and cross-selling strategy. Two ultra-large size　die-casting unit models with large tonnage （>12,000T） will be launched in 2HFY24E, which is specifically designed for the production of （i） front, middle and rear chassis for A00 class models, and （ii） mid-floor battery tray. On the other hand, LK plans to boost the sales of CNC machines through cross- selling strategy, given the standard combination of one unit of die-casting machine and four units of CNC machine.
　　Potential earnings recovery in FY24E. Given the gradual recovery of sales　in 2HFY23E （Oct 2022 - Mar 2023）， we see potential for LK’s to achieve revenue growth of 10-20% YoY and stable net profit in FY23E （note: 1HFY23E revenue/ net profit growth: +3%/ -33% due to lockdown in SH）。 Going forward, LK targets to deliver a 30% YoY revenue growth in FY24E, mainly driven by the rising contribution of ultra-large size die-casting machinery （The average selling price of 6,000-9,000T/12,000T models: RMB40-50mn/RMB63mn）。