Incident: The company announced a preliminary increase in 2024 semi-annual results. 24H1 is expected to achieve net profit of 0.38-0.433 billion yuan, an increase of 40.43%-60.02% year-on-year, and achieve net profit deducted from non-mother of 0.345-0.398 billion yuan, an increase of 40.95%-62.60% year-on-year. 24Q2 is expected to achieve net profit of 0.192-0.245 billion yuan, an increase of 21.2% to 54.7% year on year, and 2.2% to 30.4% month on month.

The company's 24H1 performance exceeded expectations, and the results of the explosive product strategy were outstanding. 24H1 expects to achieve net profit of 0.38-0.433 billion yuan, an increase of 40.43%-60.02% over the previous year. Against the backdrop of a slow recovery in the global economy, the company continues to launch explosive sewing machine products such as Kuibanwang and Gaojiao Wang to promote value marketing, drive structural upgrades in various categories and achieve performance growth.

Domestic and foreign sales may have rebounded steadily, and downstream demand is gradually being released. Domestically, after two years of negative growth, the industry may free up space for inventory replenishment and upgrading due to the support of large-scale equipment upgrading and transformation policies.

Overseas, with the release of demand for footwear consumption and inventory replenishment in Europe and the US, orders from major footwear exporters such as Southeast Asia stopped falling and rebounded, and demand for overseas sewing equipment is also expected to be released centrally during 24H2. On the marginal side, the export value of 24M5 Chinese industrial sewing machines also increased 16.2% to 0.135 billion US dollars, and the export volume also increased 10.2% to 0.4164 million units.

What is behind the frequent explosions is the company's deep insight into customers, leading edge, or continuous consolidation. In the context of the continuous promotion of the “small order quick reverse” model in the textile and garment industry, the company actively promotes explosives strategies, reduces SKUs, improves profitability and asset turnover, and consolidates its leading edge. Following the launch of the popular flatbed sewing machine “Fast Reverse King” in June '24, the company launched the explosive overlock sewing machine “Overlock King”. With the support of the two major technologies of Lightning Transformer and Lingxi Delivery, it can achieve “100 times thicker without slowing down” to meet the new needs under the changes in the Xiaoshan Express Reverse industry, and received a new order of over 0.48 billion yuan on the same day. We believe that with years of close cooperation with downstream customers, the company has a deep understanding of potential downstream demand pain points and increased research and development, and continues to launch differentiated explosives. While stabilizing the middle and low end markets, its share in the high-end market will also continue to increase.

Investment advice: We expect the company to achieve revenue of 6.67/8.525/10.571 billion yuan in 24-26, respectively, and achieve net profit of 0.71/0.84/1.06 billion yuan, corresponding to PE 17.3/14.7/11.6 times, respectively, and raised to a “highly recommended” rating.

Risk warning: risk of macroeconomic fluctuations, risk of falling overseas demand, risk of exchange rate fluctuations, increased risk of industry competition