Incident Overview

The company released the 2024 mid-year report forecast, and 2024H1 achieved net profit of 0.38-0.433 billion yuan to mother, +40%-60% over the same period last year.

In the context of recovery at the bottom of the industry, α was further highlighted. The Q2 performance surpassed market expectations of 2024H1 and the company is expected to achieve net profit of 0.38-0.433 billion yuan, +40%-60% year over year, of which Q2 is 0.2-0.245 billion yuan, +26%-55% year over year; 2024H1 is expected to achieve net profit without return to mother 0.345-0.398 billion yuan, +41%-63% year over year, of which Q2 is 0.181-0.234 billion yuan, same Compared to +26%-63%, the performance greatly exceeded market expectations. We judge that, on the one hand, demand in the sewing machinery industry is recovering from the bottom, and on the other hand, the company's market share is rapidly increasing, driven by products such as Quick Reversal. Furthermore, benefiting from the rapid optimization of the product structure and the effectiveness of reducing SKU costs, etc., we judge that the company's actual profit level has improved markedly. In particular, 2024H1's non-operating profit and loss is about 35 million yuan, mainly due to government subsidies and large deposit certificate proceeds, further increasing profit margins.

In addition to focusing on the progress of the recovery of the sewing machinery industry, the current cycle suggests paying more attention to the company's market share increasing elasticity 1) Demand side: Currently, we are still at the bottom of the cycle recovery where domestic and export sales resonate. We judge that domestic demand grew positively year-on-year in 24Q2, and overseas demand improved markedly month-on-month in 24Q2 (+16% of industrial sewing machine exports in May). Looking back, we judge that Q3 is the traditional peak season for the domestic sewing machinery industry. Domestic demand is expected to usher in a small peak, compounded by a recovery in overseas demand, and the industry boom is expected to rise marginally. 2) Supply side: If output is used as a statistical caliber, we estimate that the company's share of the industrial sewing machine market will be about 32% in '23. The company adheres to the strategy of explosives. It was officially launched in '23, leading the transformation of the industrial sewing machine market. Once the 616 “Guojiao Wang” was launched in 2024, the 5-hour order exceeded 0.48 billion yuan, further verifying the market recognition of the Kuaifan series, and is optimistic that subsequent companies will increase their market share and flexibility.

The forward-looking layout of the complete intelligent connection system further opens up the company's growth space. For the company, the development of the complete intelligent connection system business can not only open up the ceiling of the main industrial sewing machine business, but is also more important to expand the medium and large customer base through the complete intelligent connection market and increase the company's market share in CUHK customers. 1) Intelligent cutting: In 2021, China's imports and exports of equipment before and after sewing were USD 738 and 426 million, respectively. The company's merger and acquisition of German Benma strengthened the competitiveness of pre-sewing equipment. On the basis of stabilizing high-end customers, small and medium-sized customers are expected to become an important growth point. 2) Intelligent hanging system: Solves traditional post-workshop production pain points, production efficiency is greatly improved, and the penetration rate is still low. The company's hanging system can help customers increase production efficiency by 30%. The cost performance advantage is obvious, and the client is optimistic about speeding up the introduction. 3) Intelligent warehousing and logistics: The company provides intelligent warehousing solutions based on fabrics, accessories, finished products, and tailoring to further build a closed-loop smart factory network, which is expected to become a new growth point in the future.

Investment advice

Considering the progress of industry recovery and the rapid increase in the company's market competitiveness, etc., we adjusted the company's 2024-2026 revenue to 68.43 billion yuan, 90.64 and 10.890 billion yuan (original values of 65.91, 88.15 and 10.086 billion yuan), respectively, +29%, +33% and +20%, respectively; net profit to mother was 7.76, 10.57, and 1,294 billion yuan (original value of 6.89, 10.19 billion yuan, and +22%, respectively); EPS was 1.60, 2.18, and 2.67 yuan (original value 1.42, 2.10, and 2.56 yuan), and the 2024/7/12 stock price was 29.30 yuan, 18, 13, and 11 times PE, respectively, maintaining an “gain” rating.

Risk warning

The sewing machinery industry is declining, market competition is intensifying, etc.