The world's leading supplier of industrial sewing machines continues to optimize profitability. The company is the leading industrial sewing machine in China. The product structure covers pre/medium/post-sewing equipment such as cutting beds, paving machines, sewing machines, etc. Among them, sales of industrial sewing machines fluctuate with the industry cycle, and prices and gross margins are in the upward range. The company's products are exported to labor-intensive countries where the textile and garment industry is transferred, such as India and Vietnam, accounting for more than half of overseas revenue. The company's revenue growth rate turned negative in 22-23, but the 24Q1 revenue also increased by 12.6% to 1.629 billion yuan; the profit side continued to rise since 2020, mainly due to a continuous increase in gross profit margin (especially overseas gross profit margin), +1.68pct to 28.42% year-on-year in 2023. As the company's share of high-margin explosions continues to increase, the company's gross margin may continue to increase.

The release of demand for inventory replenishment was compounded by a recovery in terminal demand, and an inflection point in the demand cycle began to appear. Industrial sewing machines dominate sewing machinery in China, accounting for 60.52% of output in 2022. It is a typical cyclical industry. It generally goes through a cycle of 3-4 years. In recent years, domestic production is between 5.6-10 million units. 2021 was the high point of the cycle, and due to the pandemic and other factors, 2023 reached a cycle low of 5.6 million units. The industry is expected to usher in an upward inflection point in the cycle:

Domestic: The cumulative year-on-year revenue and profit growth rate of China's textile/textile and apparel industry declined since '22 and turned negative in '23, and gradually recovered since '24. 24M5, the cumulative profit of China's textile/textile, garment, and apparel industry was +24.73%/+0.34% year on year, respectively. The elasticity was significantly superior to the revenue side. 24M1-5 According to China's regulations, the added value of the textile industry also increased by 5.3%, and the fixed investment completed in the textile industry also increased by 13.4% during the same period, confirming the industry's recovery trend.

Overseas: Clothing brands such as Nike have entered the inventory removal cycle since '22, and have basically ended the inventory removal cycle since 24Q1. The external clothing markets such as India and Vietnam have all recovered to varying degrees, driving China's industrial sewing machine export margins upward. 24M5 China's industrial sewing machine export/export volume also increased by 16.2%/10.2% to 0.136 billion US dollars/0.4164 million units, respectively.

Strategic explosion+intelligent complete two-wheel drive, competitive advantage continues to be consolidated. On the one hand, the company understood the pain points of customer needs and launched Lockstitch Sewing Machine Explosive Quick Turn King and Overlock Sewing Machine Explosive King at 23M6/24M6. With the support of powerful computing power chips, etc., Kuaifanwang can continuously sew a variety of different fabrics and reduce adjustment time; Guojiao Wang can achieve “100 times thicker stems without slowing down”, and achieved sales of 0.48 billion yuan on the day of release. On the other hand, the company has embraced the intelligent trend of the industry and launched a complete set of quality solutions. Among them, intelligent tailoring, intelligent hanging, intelligent warehousing and logistics can all help improve efficiency to varying degrees, help the company enhance brand awareness and accelerate entry into the supply chain of major customers.

Profit forecast and investment advice: The company is expected to achieve net profit of 0.797/1.018/1.282 billion yuan in 24-26, respectively, and the corresponding PE is 15.1/11.8/9.4 times, respectively. The company is a leader in industrial sewing machines. It continues to advance its explosive strategy+intelligent complete strategy, continues to develop overseas business, and maintains a “highly recommended” rating.

Risk warning: Downstream demand recovery falls short of expectations, new product development process falls short of expectations, risk of exchange rate fluctuations