Incident Overview

The company released its 2024 mid-year report.

Domestic demand for digital printing equipment was rapidly released. H1 revenue slightly exceeded the forecast upper limit. 24H1 achieved revenue of 0.816 billion yuan, +46% year over year, slightly exceeding the forecast performance limit (+36%-45%). Of these, Q2 was 0.447 billion yuan, +62% year over year, accelerating growth. By product: 1) Digital printing equipment: 24H1 achieved revenue of 0.47 billion yuan. We estimate that it is about +40% year over year, which is the main driving force for revenue growth; 2) Ink: 24H1 achieved revenue of 0.237 billion yuan, +20% year-on-year; 3) Automated sewing equipment: 24H1 achieved revenue of 60.67 million yuan.

By region, 24H1's domestic and export sales revenue was 411 million yuan and 405 million yuan respectively, +70% and +30%, respectively. The domestic demand market grew rapidly. Looking back, “Xiaoshan Fast Reverse” accelerated the penetration of digital printing, released market demand after superimposing ink, and is optimistic about the continuation of revenue side growth.

Changes in revenue structure & reduction in exchange earnings, H1 net interest rate decreased slightly. 24H1 achieved net profit of 0.2 billion yuan, +35% year over year, of which Q2 was 0.114 billion yuan, +36% year over year; 24H1 net profit without return to mother was 0.192 billion yuan, +32% year over year, of which Q2 was 0.107 billion yuan, +31% year over year, all falling within the middle of the performance forecast range. 24H1's net sales interest rate and net sales margin after deducting non-sales were 25.44% and 27.77%, respectively, compared with -2.33 and -2.49pct, respectively. The profit level declined slightly. 1) Margin side: The gross margin of 24H1 sales was 45.84%, compared to -1.68pct. We judge that the share of ink revenue with high gross margin decreased mainly. The gross margin of 24H1 digital printing equipment was 46.05%, slightly higher than in '23 (46.05%); the gross margin of ink was 50.57%, down from '23 (53.87%). 2) Cost side:

The expense ratio for the 24H1 period was 16.59%, +2.66pct year on year. Among them, sales, management, R&D, and financial expense ratios were -1.78, -0.46, -0.86, and +5.75pct, respectively. The financial expense ratio increased significantly, mainly due to a decrease in exchange earnings. 3) Other revenue of 24H1 reached 22.24 million yuan, +375% year-on-year, mainly due to government subsidies and VAT credits, increasing profit margins.

Textile digital printing accelerates penetration, and the non-textile industry expands rapidly

1) In the textile printing industry, digital printing technology is constantly being upgraded and costs are falling. Currently, it is in a period of gradual replacement of traditional printing processes on a large scale. The demand for terminals is more personalized, small-batch, and fast and fashionable, impacting traditional printing production methods, forcing the entire textile industry chain to shift to a “small batch, zero inventory, quick response” production method, and accelerate the replacement of digital printing processes with traditional printing processes. 2) In addition, digital inkjet printing equipment is also accelerating penetration in industries such as packaging, book printing, decorative building materials, etc., further opening up room for the company's growth.

Investment advice

We expect the company's 2024-2026 revenue to be RMB 1,688, 21.63 and RMB 2,679 million, respectively, +34%, +28%, and +24%, and 2024-2026 net profit of 4.32, 5.82, and 761 million yuan, respectively, +33%, +35% and +31% year-on-year, EPS of 2024-2026 will be 2.41, 3.24, and 4.24 yuan, respectively, and the 2024/8/28 stock price of 57.96 yuan will correspond to PE 24, 18 and 18 14x, first coverage, gives an “gain” rating.

Risk warning

Downstream business is declining, competition is deteriorating, new business expansion falls short of expectations, etc.