Incident: 1) The company released its 2023 annual report. Revenue in 2023 was 1.26 billion yuan, up 40.7% year on year, and net profit to mother was 330 million yuan, up 33.8% year on year; 2023Q4 achieved operating income of 380 million yuan, up 90.4% year on year; and realized net profit of 85.88 million yuan, up 51.8% year on year. As the company's technical level continues to improve and market recognition increases, performance has grown steadily. 2) The company released its 2024 quarterly report. 2024Q1 revenue was 370 million, up 30.2% year on year, and net profit to mother was 86.52 million, up 35.0% year on year.

Changes in the revenue structure led to a slight decline in profit margins in '23. 1) In 2023, the company's comprehensive gross profit margin was 46.5%, down 0.7 percentage points from the previous year, mainly due to the lower gross margin of automated sewing equipment and digital printing equipment for new products; the net profit margin was 26.7%, down 1.3 percentage points from the previous year. The fee rate for the 23-year period was 16.0%, an increase of 0.3 percentage points over the previous year, mainly due to more exhibitions after the end of the epidemic, and the large year-on-year increase in the sales expense ratio. 2) The company's comprehensive gross profit margin for the first quarter of 2024 was 45.6%, down 1.9 percentage points year on year, and the net interest rate was 24.4%, up 0.5 percentage points year on year; the cost ratio for the period was 16.7%, down 1.4 percentage points year on year, mainly due to the results of the company's fine management and the year-on-year decline in sales and R&D expenses.

It extends vertically upstream in the industrial chain, and the gross margin of consumables has further increased. 1) Digital printing equipment revenue was 610 million, up 32.4% year on year; gross profit margin was 45.3%, up 1.7 percentage points year on year, due to product upgrades and increased added value. 2) Ink revenue was 410 million yuan, up 8.2% year on year; gross profit margin was 53.9%, up 2.1 percentage points year on year, mainly due to the company's vertical expansion to independently produce consumables starting from raw materials, and further cost reduction. 3) The revenue of automated sewing equipment was 105 million, with a gross profit margin of 23.5%. This was the first time that the subsidiary Texpa products from Germany were merged. 4) Digital printing equipment has revenue of 60 million yuan and a gross profit margin of 44.1%. It is a new product launched by the company to expand the digital printing field horizontally after acquiring Yingkejie.

Horizontal expansion is smooth, and production capacity is climbing steadily. In addition to focusing on digital printing equipment in the textile field, the company is actively expanding equipment for various industrial applications such as book printing, building materials finishing, and corrugated paper printing. It has successfully launched related products and obtained 60 million yuan in revenue in 23 years. In terms of production capacity, the intelligent factory with an annual output of 2,000 sets of printing equipment and consumables for the company's IPO fund-raising project has been officially put into operation, and production capacity and quality have been further improved. The intelligent production line with an annual output of 3,520 sets of printing equipment for the fixed increase project has completed infrastructure work. The production capacity is climbing smoothly, and the performance is expected to maintain high growth.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 424 million yuan, 554 million yuan, and 614 million yuan respectively, corresponding to EPS of 3.52, 4.60, and 5.10 yuan, respectively. The net profit to mother will maintain a compound growth rate of 23.6% over the next three years, maintaining a “buy” rating.

Risk warning: Risk of fluctuating demand in the terminal market, risk of overseas market risk, risk of core equipment dependence on external procurement, risk of production capacity under construction and production progress falling short of expectations.