Han Zhong Precision Machinery: The prospects of vacuum pumps are bullish. Buy rating

On August 27th, we went to Hanzhong Seiki (002158) for investigation. At present, the company is in good operating condition, full of orders, and continuously full-load production. At present, the company’s core component-rotor production capacity reaches 24,000 pairs/year, but still Nearly one-third of the rotors need to be purchased. Before and after the Spring Festival next year, the company's newly purchased equipment will be put into production. By that time, the rotor's production capacity will be doubled, basically eliminating the need for outsourcing rotors, which will help the company to ease production capacity bottlenecks and increase gross profit margins.

The company actively expands the vacuum pump market for new products. At present, the company's vacuum pumps are still mainly used to replace traditional oil pumps in the fields of pharmaceuticals, chemicals, and photovoltaics, and carry out maintenance services for high-end imported vacuum pumps in semiconductors, LEDs, etc., pending vacuum pumps. After a certain scale of products, the company will actively enter semiconductors, LEDs and other fields with higher profit margins. We are optimistic about the company's vacuum pump business prospects and look forward to replicating the rapid growth model of air compressors.

We maintain our earnings forecast for the company from 2010 to 2012 of RMB 0.66, RMB 0.98, and RMB 1.32. We are optimistic about the growth of the company's next year's performance after capacity expansion, and the prospects for the development of vacuum pumps, and maintain a “buy” investment rating.