The company released its 2024 three-quarter report. 2024Q1-Q3: The company achieved revenue of 1.26 billion yuan, yoy +43.36%, net profit of 0.31 billion yuan, yoy +29.51%, gross profit margin of 46.5%, yoy-1.52pct, net profit of 25.4%, yoy-3.02pct; 2024Q3: The company achieved revenue of 0.45 billion yuan, yoy +39.1%, net profit due to mother 0.11 billion yuan, yoy +19.9%, net profit due to mother 0.107 billion yuan, yoy +24.2%, gross profit margin 47.6%, yoy-1.20pct, net profit margin 25.3%, yoy-4.23pct.

After deducting the impact of exchange and equity incentive fees, the company's profit to mother continued to grow rapidly. 2024Q3, the growth rate of the company's net profit to mother is slower than the revenue growth rate. We expect it to be mainly affected by the increase in exchange and equity incentive fees.

2023Q3, the company's sales, management, R&D, finance and total expense ratios were +6.3%, +13.0%, +5.5%, -0.2%, and 24.7%, respectively. The year-on-year ratio was -1.66pct, +0.52pct, -0.63pct, +2.68pct, and +0.91pct; judging from the absolute value of Q3, management expenses increased to 33.67 million yuan from 20.51 million yuan last year, and financial expenses increased by about 8.4 million yuan Million yuan. We expect the increase in management expenses to be mainly related to the company's introduction of equity incentives and additional equity incentive fees, while the increase in financial expenses is expected to be related to exchange losses due to RMB appreciation in the 3rd quarter. Excluding the impact of equity incentives and exchange losses, the company's net profit to mother continued to grow rapidly in the 3rd quarter.

The domestic growth rate is better than that of foreign countries, which is expected to be related to the rapid growth in domestic equipment sales. Judging from the data for the first half of 2024 disclosed by the company, ① domestic: revenue of 0.411 billion yuan, yoy +69.5%, gross profit margin of 47.1%, equipment achieved rapid growth, gross margin decreased slightly by 0.6 pct compared to 47.7% for the full year of 2023; ② exports:

Revenue was 0.405 billion yuan, yoy +28.7%, and gross profit margin was 44.6%, down 0.8 pct from 45.4% in the full year of 2023. The company's domestic revenue growth rate surpassed the export growth rate, and the domestic growth rate showed a certain acceleration trend. Combined with the equipment sales growth rate being better than the ink growth rate, we think it may mainly be related to the better domestic equipment sales situation. The driving force is mainly due to the rapid increase in the digital penetration rate.

Actively increase production capacity and strengthen the integrated extension and layout of the industrial chain. The company focuses on the extension and layout of the industrial chain. The 2024H1, inkjet printing industry integrated base project has officially started in the Nangang Industrial Zone in the Tianjin Economic Development Zone.

The project invested about 0.6 billion yuan, covered an area of 0.093 million square meters, and built an integrated inkjet printing industry production line with an annual output of 0.047 million tons of digital inkjet ink and 200 industrial digital inkjet printers. The project is scheduled to be completed and put into operation in 2025. Increasing investment in ink production lines is an important step for the company to achieve the company's strategic goals. It will open up the entire Honghua Digital Printing industry chain, promote the company's efficiency, reduce costs, and enhance competitiveness.

Investment advice: We expect net profit to be 0.44/0.575/0.767 billion yuan in 2024-2026, respectively. The corresponding valuations are 29x/22x/17x, respectively, maintaining the “recommended” rating.

Risk warning: 1. The progress of production expansion is lower than expected; 2. The penetration rate of digital printing falls short of expectations; 3. The risk that core raw material nozzles for digital inkjet printing equipment mainly rely on outsourcing.