23Q4 Rapid growth in revenue and profit

On April 26, Honghua Mathematics released its annual report. In 2023, it achieved revenue of 1,258 million yuan (yoy +40.65%), net profit of 325 million yuan (yoy +33.83%), deducting non-net profit of 312 million yuan (yoy +32.36%).

Among them, Q4 achieved revenue of 376 million yuan (yoy +90.41%, qoq +16.47%) and net profit to mother of 858.845 million yuan (yoy +51.70%, qoq -6.23%). Maintaining the previous profit forecast and adding the 2026 profit forecast, we expect the company's net profit to be 4.3, 5.2, and 610 million yuan respectively for 2024-2026 (previous value of 430 million yuan and 520 million yuan for 2024-2025). Comparatively, the company's 24-year Wind unanimously expected an average PE value of 33 times, giving the company 33 times PE in 24 years, with a target price of 117.5 yuan (previous value of 109.7 yuan), maintaining the “gain” rating.

Digital printing equipment is growing rapidly, driving overall revenue growth

By business, the company's digital printing equipment/ink business revenue was +32% and +8%, respectively. In terms of equipment, the company launched VEGA X5, VEGA9000DI, ix series and EcoPrint digital printing machines in 23. In terms of efficiency, the daily capacity of VEGA's main models can reach more than 15,000 meters, and the field is new in the field of direct paint injection digital printing. The ink sector is growing steadily as equipment stocks increase. Currently, the company is planning an intelligent ink production base in Tianjin, and production capacity is expected to expand to 40,000 to 50,000 tons after completion.

The newly acquired Yingkejie and TEXPA contributed 63.18 million in digital printing equipment and 105 million in automated sewing equipment revenue respectively, accounting for about 13% of total revenue in '23.

The new business also showed a low gross profit margin. Actual profitability improved. The company achieved gross profit margin of 46.5% and net profit margin of 26.7% in 23, respectively. The overall decline in gross margin was mainly due to relatively low gross margins of newly added sewing equipment and digital printing equipment. The gross margin of the digital inkjet printing equipment/ink business was +1.74 and +2.1 pct, respectively. As the production capacity of the IPO project was gradually put into operation, the company's degree of production integration continued to increase. Looking at the cost structure, the share of raw materials dropped to 76.5% in '23, the proportion of labor increased from 4.9% to 11.2%, and manufacturing costs increased from 11.6% to 12.3%.

Due to the increase in exhibitions, the sales expense ratio increased slightly. The companies' sales/management/R&D/finance expense ratios were +1.9/-1.6/+0.5/-0.6 pct compared to the same period in 23 years, respectively, with high R&D investment. The increase in the sales expense ratio is mainly due to the increase in promotional exhibition fees due to the increase in the company's participation in exhibitions and the increase in sales staff wages and travel expenses due to business growth; management expenses are well controlled, and scale effects are evident; the R&D sector maintains a high standard of investment; and the decrease in financial expenses is mainly due to an increase in interest income.

Risk warning: 1) The increase in digital printing penetration falls short of expectations; 2) nozzle supply relies on imports; 3) the acquisition company's integration progress falls short of expectations.