Core views

Deeply involved in the industry for more than 20 years, a leading company in the horizontal machine industry. The company was founded in 2003, is deeply involved in the horizontal machine industry and is a leading enterprise in intelligent knitting equipment in China. The main products are intelligent knitting machinery and equipment, mainly used in the production of sweaters and uppers. In 2010, the company's general computer horizontal machine market reached the largest scale in the world. Multinational mergers and acquisitions of the established European horizontal machine manufacturer Swiss Si Tang began to enter the field of fully molded horizontal machines. Through 12 years of mergers and acquisitions and technical learning, Cixing achieved self-reliance and self-improvement in full-molding technology in 2022, and launched a number of KS series first-line molding machines with independent intellectual property rights. The technical performance of this series of first-line knitting machines reached the world's leading level.

The company's traditional computer horizontal machines are improving steadily and are expected to usher in a new round of replacement cycles. Computer knitting machine equipment usually needs to be upgraded in 5 to 8 years. As the equipment wears out and ages, China's huge stock of flat knitting machines will provide a long-term and stable market space for computer flat knitting machines in China.

The last round of sales in the computer knitting machine market in China peaked in 2017, and it is expected that the short term will usher in a new round of replacement cycle.

Keep up with the trend of the transfer of the knitting industry chain and actively explore the markets of the Belt and Road countries. Today, the global knitted sweater industry chain still involves manual processes such as sewing clothes, etc., and is labor-intensive. There is a trend of shifting the industrial chain to low-cost countries in the restructuring of the global manufacturing industry. The company closely follows this trend and actively explores the market in Belt and Road countries. As of September 2023, the company's computer knitting machine products have been sold to more than 20 countries and regions along the Belt and Road, with cumulative export sales exceeding 0.025 million units from 2009 to the first half of 2023. The company has set up offices in Bangladesh, Cambodia, Russia, Turkey and other countries; it has also set up representative offices in Vietnam, Mexico, India, Italy, Argentina, Chile, etc.

Revenue is growing steadily, and gross margin is expected to increase further. In terms of revenue and net profit to mother, in 2023, the company achieved operating income of 2.032 billion yuan, an increase of 6.90% over 1.901 billion yuan in the same period of the previous year; net profit to mother was 0.114 billion yuan, an increase of 25.27% over 0.091 billion yuan in the same period last year.

In terms of gross margin, the overall gross margin of the horizontal machine business increased from 29.46% in 2019 to 31.48% in 2023. Among them, the gross margin of new first-line molding models was high, reaching 40.85% in 2023.

With the release of first-line horizontal molding machines, the share of the company's overall revenue continues to increase, and we expect that the company's overall gross margin will have room for further increase.

Investment advice

The company's computer knitting machine equipment usually needs to be upgraded in 5 to 8 years. The last sales peak was in 2017, and it is expected that the short term will usher in a new replacement cycle. The first-line horizontal molding machine has advanced technology, is in line with the “small order quick return” trend in the downstream garment industry, and is expected to become a new performance growth point. We expect the company's overall revenue in 2024, 2025, and 2026 to be 2.68, 3.15, and 3.714 billion yuan, respectively, with year-on-year increases of 31.9%, 17.5%, and 17.9%, respectively. Net profit attributable to mother was 0.387, 0.258, and 0.318 billion yuan respectively, with year-on-year increases of 238.8%, -33.2%, and 23.3%, respectively. Corresponding EPS was 0.49, 0.33, and 0.40 yuan, respectively. Corresponding to the closing price on July 15, PE was 11.60, 17.36, and 14.08, respectively. For the first time, coverage gave a “gain” rating.

Risk warning

Risk of overseas economic recovery falling short of expectations; risk of market demand falling short of expectations; risk of fluctuations in raw material supply and prices.