Investment highlights

For the first time, Jack shares (603337) were given an outperforming industry rating. The target price was 32.29 yuan. Based on the P/E valuation method, corresponding to 24x P/E in 2024, the company is a leader in the global sewing equipment industry. The reasons are as follows:

The 2024 industrial sewing machine cycle is picking up. 1) The cycle characteristics of China's sewing equipment are obvious. From 2022 to 2023, the production of industrial sewing machines in China's entire industry fell 37%/11% year on year, and the inventory level reached a low point. 2) Global clothing consumption, represented by China, gradually picked up in 2024, leading to an increase in textile manufacturing orders. We are optimistic about the flexibility of purchasing industrial sewing machines as a post-spinning type and corresponding new equipment. According to statistics from the China Sewing Machinery Association, the domestic sales of 2024Q1 sewing equipment in China increased by about 20% year-on-year.

Endogenous & extrinsic, focusing on garment sewing equipment. The predecessor of Jack Co., Ltd. was established in 1994 and is actually controlled by the Nguyen Family. As a private enterprise in Taizhou, the company's enterprise decision-making mechanism is at the forefront of the industry. 1) Endogenous:

In the past five years, the company's R&D expenses rate has increased year by year. Self-developed motor electronic controls, and the domestic industrial sewing machine market share reached 32% (output caliber) in 2023. 2) Extension: In 2009, Esteponma (Germany) was acquired to fill the cutting board, and in 2018, it acquired Vibima (Italy) to enter cowboy automation. In 2023, the company's revenue was 5.29 billion yuan, and it is a comprehensive pre/mid/post-sewing intelligent solution provider.

Fast reverse the small order to create the core product SKU. With the rapid development of e-commerce channels, the product production of enterprises in the textile and garment industry is shifting towards customization, small batch, and fast frequency. 2023H1 launched the “Quick Reverse King” smart sewing machine. According to the company's announcement, sales volume for the full year of 2023 will be around 0.2 million units. In June 2024, the company launched a new “Guojiao Wang” intelligent overlock sewing machine, which is expected to replicate the path of success. Furthermore, we anticipate that 2024 is expected to enter a customer breakthrough period for complete intelligent connectivity solutions.

What is our biggest difference from the market? The market is concerned that the cyclical inflection point of sewing equipment has not been reached. We believe that domestic demand in 2024 will drive more than direct exports to foreign countries, and there is still room for enterprises to expand overseas in 2025.

Potential catalysts: the extension of the industry's inventory replenishment cycle, the recovery of quarterly orders for clothing retail consumption, etc.

Profit forecasting and valuation

We expect the company's 24/25 EPS to be 1.35/1.55 yuan, respectively, and a CAGR of 18.2%. We gave the company a target price of 32.29 yuan, corresponding to the 24/25 P/E of 24/21x, and the current price corresponding to the 24/25 P/E of 19/17x, corresponding to a 25% increase space, giving it a rating of outperforming the industry.

risks

Export demand is recovering slowly, exchange rate fluctuations in overseas markets, rising raw material prices, etc.