CMSC: Stable growth in revenue and profit for the machine tool and cutter sector; overall improvement in inventory and contract liabilities.

CMSC has released a research report stating that China's machine tool industry is steadily developing. The demand for high-end manufacturing in sectors such as new energy vehicles, AI hardware (liquid cooling, optical communication, etc.), and humanoid robots from Siasun Robot & Automation is gradually increasing, structurally boosting the profitability of the industry. The overall growth in the industry is relatively benign, with no price-cutting sales behavior observed, and the total demand and supply are well-matched. If the industry's order revenue continues to grow, net profit margins are also expected to gradually improve. The primary reason for the growth in the tooling sector in the first half of 2026 is a significant increase in tungsten prices, resulting in a growth rate of net profit attributable to the parent company exceeding that of revenue. The bargaining power on the supply side has further strengthened, and overall industry demand is good. The main points of CMSC are as follows: Machine Tool Sector: Stable growth in revenue and profit, with improving profitability In terms of revenue and profit: Sample companies achieved a total revenue of 11.595 billion yuan in the first half of 2026, a year-on-year increase of 25.18%. The sample companies achieved a total net profit attributable to the parent company of 992 million yuan, marking the highest semi-annual value since the first half of 2022, with a net profit growth rate reaching 33.72%. The firm believes that the growth in revenue for the machine tool sector in the first half of 2026 is mainly due to strong procurement demand from downstream devices, such as general equipment, automotive and motorcycle parts, consumer electronics, telecommunications, and liquid cooling and heat dissipation, resulting in significantly increased sales orders and corresponding revenue growth. Meanwhile, the current machine tool industry in China is steadily developing, with gradually increasing demand in high-end manufacturing sectors like new energy vehicles, AI hardware (liquid cooling, optical communication, etc.), and humanoid robots from Siasun Robot & Automation, structurally enhancing the industry's profitability. Profitability: In the first half of 2026, the average gross margin of sample companies reached 26.68%, an increase of 0.93 percentage points compared to the same period last year; both the gross margin level and its growth rate are new highs since the first half of 2022. In the first half of 2026, the average net profit margin of sample companies was 10.53%, up 0.22 percentage points from the average net profit margin of 10.31% in the first half of 2025, indicating an improvement in profitability. The firm believes this suggests that the overall industry growth is relatively benign, with no price-cutting sales behavior observed, and total demand and supply are well-matched. If order revenue continues to grow, net profit margins are expected to gradually improve. Asset Quality: In the first half of 2026, sample companies had a total inventory of 10.858 billion yuan, up 15.82% from the previous year, marking a new high since the first half of 2022. The firm believes that the current high revenue growth in the machine tool sector, combined with elevated inventory levels, may indicate that sample companies are optimistic about industry trends and are actively stocking up to meet future demand. Additionally, considering that part of the inventory includes "goods dispatched," the current high inventory level may provide a certain level of support for the confidence in performance during the subsequent reporting periods. In terms of contract liabilities, sample companies had contract liabilities of 2.985 billion yuan in the first half of 2026, an increase of 27.76% year-on-year, with both the amount and growth rate being new highs since the first half of 2022. The firm believes that overall observation of inventory levels indicates good certainty for the machine tool sector's future performance, with expected continuation of the growth trend in the subsequent quarters of 2026. Tooling Sector: Rapid growth in revenue and profit, with significant increases in inventory and contract liabilities In terms of revenue and profit: Sample companies achieved a total revenue of 3.885 billion yuan in the first half of 2026, representing a year-on-year increase of 71.69%. The total revenue marked a new semi-annual high since 2021, with a noticeable increase in growth rate. The firm believes that the primary reason for growth in this sector is the significant rise in tungsten prices in the first half of 2026; tungsten metal is a key raw material for industrial tools, and corresponding companies in the industry adjusted prices, thus driving revenue growth. On the profit side, sample companies achieved a total net profit attributable to the parent company of 1.174 billion yuan in the first half of 2026, marking the highest semi-annual figure since the first half of 2021. The growth rate of net profit attributable to the parent company outpaced revenue growth, which the firm attributes to the pronounced scale effect of industrial tools and the rapid decline in marginal costs under a background of high capacity utilization. Additionally, the rapid rise in tungsten prices in 2026 allowed sample companies to use some of their low-priced inventory before the price increase, resulting in certain profits. Profitability: In the first half of 2026, the average gross margin of sample companies reached 50.32%, an increase of 21.99 percentage points compared to the same period last year; both the gross margin level and its increase are new highs since the first half of 2021, surpassing the peak of the first half of 2021. The firm believes this indicates that overall industry growth has entered an upward cycle, with instances of price increases in sales, leading to a certain mismatch between overall demand and supply, with the supply side exhibiting strong bargaining power. In the first half of 2026, the average net profit margin of sample companies was 32.54%, a rise of 23.65 percentage points from the average net profit margin of 8.89% in the first half of 2025, showing a significant enhancement in profitability. The firm notes that if tungsten prices fluctuate in the future, the industry's net profit margins will also be affected, often mirroring the direction of tungsten price trends. Therefore, it is necessary to monitor tungsten price trends for the future development trend of net profit margins in the tooling sector. Asset Quality: In the first half of 2026, sample companies total inventory reached 4.191 billion yuan, an increase of 107.28% from the previous year, and this amount is the highest since the first half of 2022. The firm believes that the substantial increase in inventory amount in the tooling sector is primarily due to rising tungsten prices leading to revaluation of corresponding products, alongside the company's strategic increase in inventory reserves to respond to fluctuations in raw material prices. In terms of contract liabilities, sample companies had contract liabilities of 84 million yuan in the first half of 2026, an increase of 185.72% year-on-year, with both the amount and growth rate reaching new highs since the first half of 2022. From the perspective of year-on-year growth, the firm notes the significant increase in contract liabilities in the first half of 2026, along with an increase in the willingness to prepay for product purchases, which may indicate a strengthening of bargaining power on the supply side in the tooling sector, and overall industry demand remains good. Risk Warning: Downstream industrial production demand may fall short of expectations; fluctuations in raw material prices may affect downstream procurement.