Core views

Incident: On October 8, Honghua Digital signed a tripartite strategic cooperation agreement with Jiangsu Interstate Digital and Dongshin Industrial Co., Ltd. The three parties will strengthen cooperation in fields such as innovative application of digital printing technology, Honghua's latest single-pass equipment, and digital intelligence upgrading in the home textile industry to help transform and upgrade the home textile industry.

Digital printing helps home textiles to be flexible and fast, and Interstate Digital announced the expansion of production. With the surge in demand for personalized and customized products in the consumer market in the home textile industry, traditional production models are no longer able to meet the new needs of the market.

Digital printing technology can help the home textile industry to achieve flexibility and quick reversal, reduce inventory, and enhance market competitiveness. Interstate Digital has established a leading position in the field of digital printing for home textiles. The first phase of the digital printing plant with a target output of 0.2 million meters per day, which was set up at the beginning of the year, has been successfully completed. Interstate Digital plans to build a digital printing factory with a daily output of 2 million meters within two years, and is expected to expand the single-pass machine production line from the current 1 to 10 units within 2 years, providing a strong example for the digital transformation of home textiles.

Honghua Mathematical Single-Pass has sold more than 40 units worldwide, and the latest product has obvious advantages. Honghua Mathematics launched its first Single-Pass machine in 2016, and has sold more than 40 units in the global market. Honghua Math's third-generation Single-Pass machine uses Dongshin Industrial's printing platform and round net components (for pulping and overprinting), and the latest generation Kyocera circulation sprinkler. The maximum operating speed of the production line can reach 6km/h, the stable production capacity is 0.08-0.1 million meters per day for 24 hours, and the resolution is as high as 1200 DPI. The conclusion of this strategic cooperation indicates that Honghua Digital will fully expand its application map for Single-Pass machines and further consolidate its leading position in the global digital printing industry.

“Equipment+consumables” two-wheel drive, creating an integrated platform-type capability. As the company's digital printing equipment market holdings increase, the sales scale of consumable parts represented by ink will continue to increase. The company focuses on the extension and layout of the industrial chain. 1H2024's inkjet printing industry integration base project has officially started in the Nangang Industrial Zone in the Tianjin Economic Development Zone. The project has an investment of about 0.6 billion yuan, covers an area of 0.093 million square meters, and has an annual output of 0.047 million tons of digital inkjet ink and 200 industrial digital printer production lines. The project is scheduled to be completed and put into operation in 2025. It will open up the entire digital printing industry chain of Honghua Digital Printing, promote enterprises to improve efficiency and reduce costs, and enhance the core competitiveness of products.

Investment advice: The company is a leading domestic digital printing equipment company with deep product technical strength. We expect the company to achieve operating income of 1.71/2.3/3 billion yuan and net profit to mother of 0.43/0.56/0.72 billion yuan in 2024-2026, corresponding PE of 31.6/24.3/18.8 times, respectively, and maintain the “gain” rating.

Risk warning: Overseas market risk, risk of unrecoverable accounts receivable, risk of exchange rate fluctuations, etc.