Zhitong Finance and Economics App learned that 中金 released a research report stating that 2023 Q4/2024 Q1 textile manufacturing leading indicators continue to improve, the industry initiates "active inventory replenishment", and demand continues to recover. Looking ahead, the bank believes that: 1) Under low equipment stock, the effective transmission of replenishment orders during this round to equipment suppliers will result in strong profit recovery in 2024; 2) The textile machinery cycle is strong, and interlocking, and the concentration of enterprises increases slowly; 3) China's textile machinery production capacity radiates globally, bullish about the international competitiveness of sub-sector leaders.

China International Capital Corporation's views are as follows:

1Q24 textile and apparel manufacturing has reached a turning point, with equipment sector benefiting first.

In 2023, global textile and apparel consumption demand steadily recovered, coupled with optimization of terminal brand inventories, transitioning to replenishment phase in 2024 Q1. From January to April 2024, China's fixed assets for textiles and textile apparel grew by 18%/16% year-on-year, achieving double-digit growth. The bank sees the valuation of textile machinery in 2024 to recover, and emphasizes the internationalization of core assets from a medium-term perspective.

In 2023, global textile machinery was 22.5 billion USD, with China accounting for more than half.

Textile machinery is divided into spinning, weaving/knitting, printing and dyeing, and sewing processes, with strong professional division of labor. According to QY Research's forecast, global textile machinery will be worth 22.5 billion USD by 2023, with a composite growth rate of about 4% by 2029. 1) Demand: According to ITMF, China's textile machinery contributes more than 50% of global demand, with sub-categories such as elastic silk machines and computerized flat machines accounting for 85%/63% of the global market. 2) Supply: According to statistics from the China National Textile and Apparel Council, in 2023, China's self-sufficiency rate of textile machinery exceeded 75%, with active acquisitions from overseas.

Brand expansion to build global competitiveness.

After 2020, Chinese textile and apparel companies have frequent cross-border investments (especially in the Belt and Road markets), and the scissors gap between China's textile machinery imports and exports continues to widen. In 2024 Q1, Asia's export demand is stable and on the rise, with exports of sewing machinery to South Asia and ASEAN increasing by +31.91%/+18.36% year-on-year. The bank estimates that the CR5 of the top listed companies in China's textile machinery was less than 12% in the global market in 2023, indicating platform-based integration and high-end upgrading space.

Short process, intelligent, and green become the main themes of technological iteration.

According to the "14th Five-Year Plan" for the development of the textile machinery industry, key requirements are proposed for short process (new spinning equipment), intelligence (smart factories), and greenization (printing and dyeing links) until 2025, with equipment manufacturers continuously facing upgrading demands. In addition, the breakthroughs in China's textile machinery's common underlying level (electronic control system, mechanical dynamics research, and detection technology) are worth noting.

Risk warning: Increasing competition risk; lower-than-expected end consumer demand risk; geopolitical risk.