Core views:
24Q1 results exceeded expectations. The company released an annual report and quarterly report, with operating income of 5.294 billion yuan in 23, -3.78% year on year; net profit to mother was 538 million yuan, +9.08% year over year. 24Q1 revenue of 1,629 million yuan, +12.56% YoY; net profit to mother was 188 million yuan, +67.56% YoY.
Profitability has increased significantly and is expected to continue to increase in 24 years. The company's gross profit margin in '23 was 28.42%, +1.68pct; 24Q1 gross profit margin was 30.06%, +3.38pct year on year; net profit margin was 11.86%, +4.0pct year on year. In '23, under the double pressure of insufficient domestic demand and declining external demand, the company achieved a remarkable increase in profit levels through explosive-product value traction and product structure optimization. The share of popular products and high-end products with higher gross margins of the company increased in '24, which is expected to drive a continuous increase in profitability.
Build the flagship “Quick Return King” and implement a strategy to streamline SKUs. In '23, the company released the new smart sewing machine “Quick Reverse”. According to the company's investor relations activity record table in January '24, the number of pre-orders for the “Quick Reverse” exceeded 150,000 units on the day of its global launch, making it a phenomenal superhit in the industry, solving the pain point of demand for small orders in garment factories. The company's R&D focuses on core categories, reduces product grades, reduces SKUs and SPUs, concentrates resources on explosives, and adopts an order lock system to effectively control product inventory. Inventories of industrial sewing machines, cutting machines, and special equipment for automatic sewing of shirts and denim declined by 37.89%, 23.85%, and 28.93%, respectively, in '23.
The industry entered the inventory replenishment stage in '24, and demand has clearly recovered. According to the annual report, the entire industry's inventory of industrial machinery was about 800,000 units in 2023, a year-on-year decrease of about 12%. Compared with the obvious relief of the industry's inventory pressure at the end of the previous year, it opened up some space for an appropriate amount of inventory replenishment. According to Wind, China's sewing machine exports increased 13.02% year on year from January '24; fixed asset investment in the domestic garment industry increased by 17.5% year on year in January-January '24, all ending negative growth over 23 years.
Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 737/9.96/1,266 million yuan. Considering comparable company valuations and company advantages, the company was given a reasonable valuation of 25xPE over 24 years, corresponding to a reasonable value of 38.02 yuan/share, and given a “buy” rating.
Risk warning. The risk of large exchange rate fluctuations, the risk that the downstream garment industry's recovery falls short of expectations, the risk of rising raw material prices, and the risk of gradual increase in fixed costs.