Incidents:
Recently, the company released its 2024 quarterly report. In 2024Q1, the company achieved operating income of 1,629 billion yuan, about +12.56% year on year; net profit to mother was 188 million yuan, +67.56% year over year. The comments on this are as follows:
The gross margin increased, and the cost ratio increased during the period. In 2023, the company's gross sales margin was about 28.42%, about +1.68pct year on year; the net profit margin was about 10.20%, +1.09pct year on year. As industry sentiment gradually recovers, the company's profitability is expected to increase further. The company's cost ratio for the period was 18.22%, about +1.29pct year on year. Of these, sales/management/R&D/finance expenses accounted for 6.40%/4.64%/7.45%/-0.27% of operating income, respectively. The main reason was that sales and financial expense ratios were +1.27pct and +0.51 pct year on year, and overall cost control was good. In 2023, the company achieved net operating cash flow of 1,467 million yuan, of which 24Q1 achieved net operating cash flow of 292 million yuan.
The domestic sales market is expected to stabilize, with the general trend of integration+digital intelligence. The company focuses on the creation of flagship explosions such as “Fast Reverse King”. The industry is accelerating its transformation to digitalization and intelligence, and the whole factory's intelligent sewing solutions characterized by intelligent complete sets are gradually moving from local pilots to full application. In 2023, the total domestic sales volume of industrial sewing equipment in the industry was about 1.85 million units, down about -20% year on year to the industry's sluggish level in 2016. At the same time, the industry's inventory of industrial machinery was about 800,000 units in 2023, about -12% year on year. Inventory pressure was significantly reduced. The domestic sales market is expected to enter a recovery cycle in 2024, compounded by various policy incentives, and terminal demand is expected to be further released.
Overseas regions continued to improve, and the export market gradually advanced. In 2023, the European and American markets were affected by both high inflation and high inventories, which led to a sharp drop in orders, further suppressing demand for sewing equipment imports. However, in 2024, with factors such as the gradual easing of inflation in countries such as Europe and the US and expected to enter a cycle of interest rate cuts, import demand is expected to pick up. In particular, the gradual increase in footwear consumption and inventory demand in Europe and the US, and orders from Southeast Asian and other footwear exporters have stopped falling and rebounding. At the same time, markets in emerging markets such as Central Asia, Africa, and Latin America remain active. It is expected that overseas markets will contract but the decline will narrow in the second half of the year.
Investment rating: The company's net profit for 2024-2026 is estimated to be $692 million, $837 million, and $1,062 million, respectively. Corresponding PE is 20x, 17x, and 13x, respectively, covered for the first time, giving it an “increase in wealth” rating.
Risk warning: industry sentiment falls short of expectations; risk of failure of profit forecasting and valuation models