Performance Meets Expectations, Accelerating Transformation and Upgrading

Yawei Corporation (002559) released its 2016 half-year report, and the performance met expectations. In the first half of the year, the company achieved operating income of CNY 5.3 billion, a year-on-year increase of 9.7%. Net profit attributable to the shareholders of the listed company was CNY 456.809 million, a decrease of 14.38% compared to the same period last year. While the company's overall profitability declined slightly, the gross profit margin decreased from 26.73% in the same period last year to 24.62%. In the current sluggish state of the machine tool industry as a whole, the significant achievements in the company's development of emerging businesses such as laser equipment, automated production lines, and industrial robots in the first half of the year met expectations.

Rapid Development of Automated Production Lines and Laser Equipment: In the first half of the year, the overall revenue of the company's machine tools and production lines was CNY 5.07 billion, a year-on-year increase of 7.86%. The company's significant progress in exploring international markets is evident, with international business contracts growing by 47% year-on-year. In the past two years, the automated production line business has been in a rapid development phase. The company has already expanded all high-end CNC host products toward automated complete production lines. In the first half of the year, orders for automated production lines for precision processing of aluminum sheets exceeded expectations. Demand downstream for automated production lines is continuously growing, supporting further improvement in the company's performance.

Laser Industry Represents the Development Direction of Sheet Metal Equipment Manufacturing: In the first half of the year, the company's business orders for two-dimensional CNC laser cutting machines increased by 120% year-on-year. The acquisition of Chuangkeyuan, completed last year, has a strong competitive advantage in the field of three-dimensional CNC laser cutting systems. This acquisition is beneficial for expanding the company's scale in the laser industry and better utilizing synergies in the market, procurement, and technology.

Significant Achievements in the Field of Robotics Through Collaboration with KUKA: The company's collaboration with Germany's KUKA in the field of linear robots is progressing smoothly. Sales of industrial robot bodies have seen a substantial increase, and the annual sales target of CNY 60 million is expected to be achieved. The robot body products, originally used to supply internal clients KUKA and LIESE, are now being sold externally. In the first half of the year, the company succeeded in developing linear robots for integration into other industries, which, when combined with the company's high-end hosts, has laid the foundation for trial production and promotion in the second half of the year.

Investment Recommendation: We forecast earnings per share for 2016 to 2018 to be CNY 0.22, CNY 0.25, and CNY 0.28, respectively. We recommend a "Hold-A" rating, with a 6-month target price of CNY 16.5, equivalent to a dynamic price-earnings ratio of 66 times for 2017.

Risk Warning: Risks include macroeconomic downturn, excessive industry competition, and unmet performance expectations due to issues with market expansion.