Excellent digital printing equipment, vertical and horizontal layout, with the advantages of the whole industry chain. The company was founded in 1992, started with textile CAD/CAM, and has been deeply involved in the field of digital printing for more than 30 years. After years of development, the company's equipment has been widely recognized in domestic and foreign markets, leading the world in market share. In the domestic market in 2017-2019, the company ranked first in sales of high-end textile digital inkjet printing machines, with a market share of over 50%. The company extends the industrial chain vertically and horizontally to achieve the “ink (consumables) + equipment (printing+sewing) + application (home textiles, etc.)” layout, and has the advantages of the entire industry chain. The company's revenue for 2022/2023Q1-Q3 was 895/882 million yuan, -5.15/ +26.56% year on year; net profit to mother was 2.43/239 million yuan, +7.24/ +28.41% year on year.

Digital printing equipment: Multiple factors drive the transformation and upgrading of the printing and dyeing industry. New installations are expected to maintain a high growth rate, and the proportion of direct injection machines in the structure is expected to rise. 1) Multiple factors drive growth: i. Digital printing responds faster to the demand for fast fashion, and is an inevitable trend in the development of the “small order quick return” model. Compared with traditional printing, digital printing has a shorter turnaround time, and can make a “small batch, quick response, and multiple changes” fast fashion supply chain truly possible. ii. Processing costs showed a downward trend, and the cost performance ratio gradually became prominent. Digital printing processing costs are declining year by year, gradually narrowing the gap with traditional printing. As ink, processing costs, etc. gradually decline, comprehensive costs are expected to decline further, which is conducive to the continuous promotion of digital printing technology. iii. Stricter environmental policies are forcing printing and dyeing factories to transform into digital production models. The textile printing and dyeing industry is a typical industry with high energy consumption and high water consumption. Compared with traditional printing, digital printing is a green process and has great advantages in energy saving and emission reduction. As environmental protection policies become stricter, printing and dyeing factories will face more sewage costs, forcing printing and dyeing factories to switch to digital production models such as digital printing. 2) Judging the development trend of digital printing equipment: i. Newly installed digital printing equipment is still expected to maintain a relatively rapid growth rate of 20%-25%; ii. The proportion of installed digital direct jet printing equipment is expected to increase, and the structure is further improved; iii. industrial grade products with high added value are on the rise under transformation and upgrading, such as the gradual increase in single-pass machines.

Ink: It is a consumable property, and the market is expected to maintain steady growth. Ink is a key material in digital printing technology. It accounts for 40% of the total production cost of digital inkjet printing, and has a great impact on equipment nozzle usage, printing color fastness, etc. Looking at the development trend, on the one hand, manufacturers such as Lan Yu Co., Ltd., Tianwei New Materials, and Honghua Mathematics are making continuous efforts to localize ink, and the gradual decline in ink prices is expected to boost the digital printing market; on the other hand, ink is expected to grow steadily as a consumable material. We estimate that the global inkjet ink market demand in 2023-2025 is about 9.38/12.76/162,700 tons, an increase of 22.40%/36.00%/27.50% year-on-year.

Company advantages: The entire industry chain layout obtains advantages such as cost, and expands multiple fields to open up room for growth.

1) Vertical: The layout obtains upstream cost advantages and opens up the downstream textile flexible chain. From an upstream perspective, on the ink side, the company lays out ink and raw materials to form a complete production process for inks such as dyes and paints to reduce manufacturing costs; on the sprinkler side, the company cooperates deeply with Kyocera Japan to form large-scale procurement capabilities. In terms of downstream expansion, the company expanded sewing and other links downward, acquired TEXPA GmbH, a German automated textile sewing equipment company, and opened up a flexible textile supply chain.

2) Horizontal: Underlying technology is common, expanding the non-woven field and opening up room for growth. The core technology of digital printing is highly scalable. The company makes full use of the core inkjet printing technology, scale advantages and ink development and production advantages accumulated in the field of textile printing to continuously reuse industrial digital printing technology in other technical fields such as book packaging printing/display, decorative building material finish printing, electronic printing, 3D printing, corrugated paper printing, label printing, etc.

Profit forecasting and valuation.

1) Profit forecast. We expect that in 2023/2024/2025, the company will achieve operating income of 1,244/1,594 billion yuan, an increase of 40.2%/26.8%/23.5% year on year; net profit to mother will be 333/4.20/533 million yuan, up 37.0%/26.1%/26.9% year on year.

2) Valuation. The company's industry is in the field of digital printing. It is the only digital printing equipment company among listed companies, and covers a complete industrial chain, involving equipment, consumables (ink), and textile (application). Most of the other companies with similar downstream and industrial chains to the company are not listed or have consistent expectations. Considering the above situation, we selected Jack Co., Ltd. (industrial sewing machinery), Nastar (application of laser and inkjet printing consumables), and Shenzhou International (vertically integrated knitting manufacturer) as comparable companies. Considering that the company's industry is in its early stages, its performance is growing rapidly and future development is more sustainable, it is applicable to the PEG valuation method. We gave the company a rating of 1.10-1.15 times PEG in 2024, a corresponding PE of 32.89-34.39 times (comparable to the company's 2024 PE valuation is 14.53-21.19 times), a reasonable value range of 114.80-120.02 yuan/share (the company's EPS is estimated to be 3.49 yuan in 2024), and a reasonable market value range of 138-14.4 billion yuan. The digital printing industry in which the company is located is an emerging industry, and the penetration rate is low. At the same time, the gross margin of the company's consumables and equipment is higher than that of similar companies in the same industry, and is highly competitive. We believe that the valuation has a certain premium and is reasonable.

Risk warning: The company's overseas market expansion falls short of expectations, the risk of core raw material nozzles mainly being outsourced, the expansion of production capacity falls short of expectations, the penetration rate of digital printing technology falls short of expectations, the risk of fluctuations in downstream demand, and errors in calculation assumptions and processes.