Stock Analysis & Valuation KEDE Numerical Control Co., Ltd. (688305.SS)

• Previous Close: $61.10
• Sector Valuation Confidence Level: Moderate

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	64.57	6
Intrinsic value (DCF)	33.46	-45
Graham-Dodd Method	21.23	-65
Graham Formula	53.14	-13

Strategic Investment Analysis

Company Overview

KEDE Numerical Control Co., Ltd. is a specialized Chinese manufacturer at the forefront of advanced CNC (Computer Numerical Control) systems and precision machinery components. Founded in 2008 and headquartered in Dalian, the company operates within the industrials sector, specifically industrial machinery, and is a subsidiary of Dalian Koyo Technology Group Co., Ltd. KEDE's core business involves the manufacturing and marketing of sophisticated five-axis machining centers, including vertical, horizontal, and turning-milling compound models, as well as specialized equipment for tool grinding and blade milling. A key differentiator is its vertical integration; the company also produces essential functional components like electric spindles, direct drive milling heads, turntables, and sensing systems. This positions KEDE as a critical supplier in China's manufacturing value chain, supporting industries that require high-precision machining, such as aerospace, automotive, and mold making. As China continues to advance its high-end manufacturing capabilities under initiatives like 'Made in China 2025,' KEDE Numerical Control is strategically positioned to benefit from the growing domestic demand for advanced, locally-produced industrial automation equipment.

Investment Summary

KEDE Numerical Control presents a focused investment opportunity within China's industrial automation theme, characterized by strong profitability metrics but tempered by significant capital intensity. The company demonstrates attractive fundamentals with a net income of CNY 130.4 million on revenue of CNY 605.5 million, translating to a robust net margin of approximately 21.5% and a diluted EPS of CNY 1.01. Its solid balance sheet, with cash and equivalents of CNY 377.9 million against total debt of CNY 122.4 million, provides financial stability. However, a major risk is evident in its cash flow statement: operating cash flow of CNY 69.8 million was substantially outweighed by capital expenditures of -CNY 413.5 million, indicating heavy ongoing investment in property, plant, and equipment. This suggests the business is highly capital-intensive, which could pressure free cash flow and limit financial flexibility, especially in an economic downturn. The modest dividend yield, based on a dividend per share of CNY 0.188, signals a focus on reinvestment for growth. Investors should weigh the company's exposure to China's capital expenditure cycles against its niche expertise and high margins.

Competitive Analysis

KEDE Numerical Control's competitive positioning is defined by its specialization in high-end, five-axis CNC machining centers and its vertically integrated business model. Unlike many competitors who may assemble systems using third-party components, KEDE manufactures key functional parts in-house, including motors, electric spindles, and direct drive milling heads. This integration potentially offers advantages in quality control, customization, and profit margins. The company operates in a highly competitive segment of the Chinese machinery market, where it must contend with large, diversified domestic giants and technologically advanced international players. Its subsidiary status under Dalian Koyo Technology Group may provide benefits such as group synergies and financial backing, which can be crucial for weathering the cyclical nature of industrial equipment demand. However, its scale is relatively modest compared to industry leaders, which could limit its R&D budget and global distribution reach. KEDE's strategy appears focused on capturing demand from Chinese manufacturers upgrading to more sophisticated, precision machinery, leveraging local presence and understanding of domestic needs. The key challenge will be maintaining its technological edge and product quality to justify its position in the higher-margin, advanced machinery niche against both domestic innovators and the established reputation of imported brands. Its success is intrinsically linked to the health of China's advanced manufacturing sectors and the continued policy push for import substitution in high-end equipment.

Major Competitors

• Shenyang Machine Tool Co., Ltd. (002008.SZ): As one of China's oldest and largest machine tool manufacturers, Shenyang Machine Tool boasts immense scale, a comprehensive product portfolio, and strong brand recognition. Its strengths include a vast distribution network and significant R&D resources. However, the company has faced financial difficulties and restructuring challenges in recent years, which may have impacted its operational efficiency and innovation pace. Compared to the more specialized KEDE, Shenyang is a broad-line manufacturer, potentially making KEDE more agile and focused in the high-end five-axis CNC niche.
• Shenji Group Kunming Machine Tool Co., Ltd. (000410.SZ): This company is a key player in precision machine tools, particularly known for its high-precision coordinate grinding machines and machining centers. It has a strong reputation for quality and technical expertise. A potential weakness is its historical volatility and exposure to cyclical downturns. Like KEDE, it competes in the precision segment, but KEDE's vertical integration strategy for core components may provide a different competitive angle regarding cost control and supply chain reliability.
• DMG MORI SEIKI CO., LTD. (GERM): DMG MORI is a global leader in CNC machine tools, representing the pinnacle of technology, reliability, and brand prestige against which companies like KEDE are measured. Its strengths are its advanced technology, global service network, and strong presence in key international markets. The primary weakness from KEDE's perspective is its higher cost structure, which makes DMG MORi's machines significantly more expensive. KEDE competes by offering technologically advanced solutions at a more competitive price point for the cost-conscious Chinese market, leveraging local manufacturing advantages.
• Tongtai Machine & Tool Co., Ltd. (6101.TW): Tongtai is a major Taiwanese manufacturer of CNC machine tools with a strong export orientation and a reputation for good value and reliability. Its strengths include competitive pricing and a diverse product range. However, it may not always compete at the very highest end of the technology spectrum occupied by players like KEDE and DMG MORI. For KEDE, Tongtai represents competition in the mid-to-high-range segment, particularly for customers prioritizing cost-efficiency alongside performance.
• GIFA GmbH (GFF.AS): Representing the broader segment of leading European machine tool builders (like Trumpf, Chiron, etc.), these companies are renowned for their engineering excellence, precision, and automation solutions. Their key strength is their technological leadership and strong brand equity in premium industrial markets. Their main weakness in competing with KEDE is their premium price point and potentially less aggressive focus on the specific needs and price sensitivity of the Chinese domestic market. KEDE's strategy is to offer a compelling alternative for Chinese manufacturers seeking to upgrade from basic machinery without incurring the full cost of European imports.