Market speculation on Tesla building a car factory in Spain has driven up the stock price of LK Technology （the "Company"）。 According to Reuters, Tesla plans to build a car factory in Valencia, Spain. If the speculations are true, Tesla's investment in the Spanish factory will drive demand throughout the industrial chain, especially for super-large die-casting machines. We believe it is still necessary to pay attention to the fundamentals of the Company as the market speculation is not confirmed.
　　The Company’s 2023 fiscal year results will be announced soon, and we expect the large die-casting machine business to continue to maintain rapid growth. The company will announce its 2023 fiscal year results on June 28. In 1HFY23, the growth rate of large die-casting machines （1,000t-5,000t） exceeded 40%; gross profit margin was around 30%-35%; the growth rate of super-large die-casting machines （>6,000t） exceeded 50%, and the gross profit margin exceeded 40%; and revenue from large and super-large die-casting machines accounted for more than 70% of revenue of the die-casting machine business. We believe that as the Company’s large die-casting machine business will continue to grow in the future, the Company's gross profit margin will continue to improve. With the extremely low penetration rate of single-piece die-casting solutions, demand for large and super-large die-casting machines from China's new energy vehicle industry will remain strong in the next few years. The Company's long-term growth logic is solid. Besides, the Company's five-axis gantry machines, supporting equipment for super-large die-casting machines, will also benefit from the increase in penetration rate of single-piece die-casting solutions, and will maintain rapid growth together with super-large die-casting machines and expand into new growth space.
　　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 manufacturing industry capital expenditure, 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.