Incident: On August 27, 2024, the company released the “2024 Semi-Annual Report”. 1H2024 achieved operating income of 0.816 billion yuan, a year-on-year increase of 45.80%; net profit to mother of 0.2 billion yuan, an increase of 35.45% year-on-year, after deducting 0.192 billion yuan of non-net profit, an increase of 31.85% year-on-year.
Second-quarter results maintained a high growth rate, and profitability increased month-on-month. Looking at 2Q2024 alone, the company achieved operating income of 0.447 billion yuan, +61.71% y/month-on-month +21.43%; net profit to mother of 0.114 billion yuan, +35.83% YoY/+31.35% month-on-month, after deducting non-net profit of 0.107 billion yuan, +30.58% /month-on-month. In terms of profit margin, 2Q2024's gross sales margin was 46.01%, -1.47pct/month-on-month +0.38pct, net sales margin 26.32%, year-on-year -5.41pct/month-on-month +1.94pct. The company's performance in the second quarter of previous years was usually poor month-on-month. The company's performance in the second quarter of this year maintained a high growth trend, confirming that the company's business scale continued to expand. The trend of downstream traditional printing and dyeing equipment being transformed into digital printing equipment was clear.
Digital printing has entered the fast track of development, and the trend of independent industry is clear. At this stage, China's digital printing is gradually entering the large-scale industrial production stage. According to data from the China Printing and Dyeing Industry Association, it is estimated that by 2025, global digital inkjet printing production will reach 15 billion meters, accounting for about 27% of the total printing volume; China's digital inkjet printing production will reach about 4.7 billion meters, accounting for about 29% of the total domestic printing process. The increase in the digital printing process replacement rate will drive the continuous and rapid growth of the company's industrial digital printing equipment and supporting ink products. By business, 1H2024's digital inkjet printing equipment business achieved revenue of 0.47 billion yuan, +44.82% year-on-year, and the ink business achieved revenue of 0.237 billion yuan, or +19.62% year-on-year.
“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 24.3/18.6/14.5 times, respectively, to maintain the “gain” rating.
Risk warning: Overseas market risk, risk of unrecoverable accounts receivable, risk of exchange rate fluctuations, etc.