Deeply engaged in digital jet printing for more than 30 years, equipment + ink integrated solution provider. Since its establishment in 1992, the company has focused on the research of digital jet printing technology, started with software, landed equipment, and further expanded to supporting ink business. In 2023, digital jet printing equipment accounted for 48.7%, ink accounted for 32.66%, automatic sewing equipment accounted for 8.38%, and printing equipment accounted for 5.02%. The company's digital jet printing equipment includes digital direct jet printing machine, digital inkjet transfer printing machine and ultra-high-speed industrial jet printing machine, with a rich product category and strong first-mover technology advantages. From 2017 to 2023, the company's revenue increased from 283 million yuan to 1.258 billion yuan, with a CAGR of 28.23%, and the net profit attributable to the parent company CAGR was 34.87% in the same period. The company's domestic and overseas markets are advancing in tandem, with overseas revenue accounting for 49.6% in the first half of 2024.

Small singles, quick reactions and environmental protection upgrades drive digital substitution of traditional, and technology upgrades and cost reductions accelerate the increase in penetration. Direct printing will account for 71.9% of printed fabric production in 2023, which is the most important printing method, and the proportion of digital printing production will increase from 2.1% in 2015 to 18.2% in 2023, and the year-on-year growth rate of digital printing output will accelerate. Compared with traditional printing, digital printing has no pattern design restrictions, no plate-making, high precision, and also has the characteristics of water saving and environmental protection. In addition, digital technology is also constantly updated and iterative, developing in the direction of higher speed, intelligence, integration, high color accuracy and stability, etc., to further improve the practicability and reliability of downstream customers using digital printing, and at the same time, with the reduction of unit ink loss and the increase of orders, the cost of digital printing continues to decline, and jointly accelerate the replacement progress of digital printing. At present, the proportion of digital printing in transfer printing is even better, and in 2023, digital transfer printing will account for 74.3% of the output of digital inkjet printing.

Compared with the penetration rate of digital printing in Europe at 25-26%, China's penetration rate has room for further improvement, and we expect that by 2027, China's digital printing equipment space will reach 15.6 billion yuan.

The increase in the penetration rate of digital jet printing has led to an increase in ink sales. At present, in China's digital inkjet ink market, sublimation ink accounts for the highest proportion due to its adaptation to digital transfer, which will be 64% in 2023. Direct injection of paint and ink is one of the development trends of the digital printing industry, which has the advantages of simple process, less waste water and exhaust gas, and a wide range of fabrics, which may further promote the improvement of direct injection penetration rate in the future. China's digital inkjet ink consumption will be 23.3% from 2015 to 2023, and it is expected that China's digital inkjet ink space will reach 1.9 billion yuan by 2027.

Equipment first, consumables follow-up. The company continues to increase R&D investment, from 31 million yuan in 2018 to 90 million yuan in 2023, and has leading advantages in the consistency of printing effect, operation stability, high speed and high cost performance of digital printing. At present, the company's research projects include the development of core spraying components, the improvement of equipment performance and the integration of front and rear processes, and actively expand to other downstream industries. In 2022, the company acquired Tianjin Jingli to open up the ink industry chain, which will further increase ink production capacity and improve ink cost advantages in the future, and build the integration advantage of equipment and consumables industry chain.

The endogenous and epitaxial layout expands the downstream and expands the non-textile track. The company's digital jet printing technology has developed rapidly in the horizontal application field, and the company has expanded digital jet printing equipment for decorative materials, digital jet dyeing equipment, corrugated paper jet printing equipment, etc. In terms of extension, the company acquired TEXPA of Germany to enter the field of automatic sewing equipment, and acquired Shandong Yingkejie to enter the field of digital printing. The company has entered more downstream fields through endogenous and epitaxial methods to open up long-term growth space.

Investment advice: We expect the company's revenue in 2024-2026 to be 16.75/21.45/2.708 billion yuan, a year-on-year increase of +33.1%/+28.1%/+26.2%, respectively, and the company's net profit attributable to the parent company in 2024-2026 is expected to be 4.32/5.57/710 million yuan, a year-on-year increase of +32.8%/29.0%/27.4%, respectively, corresponding to 2024-2026 PE of 28/22/17 Fold. Select the downstream industrial sewing machine leader Jack Co., Ltd., which also belongs to the garment manufacturing industry, Dahao Technology, a leading enterprise in industrial sewing machinery and knitting machinery electronic control system, AGCO Technology, a leading enterprise in intelligent cutting equipment, and Baichu Electronics, which also has the logic of improving the penetration rate of the industry, as comparable companies, referring to the valuation of comparable companies, considering that the penetration rate of the domestic digital printing industry is in a stage of rapid improvement, the company's equipment is followed up with consumables, the business model is excellent, and it has a first-mover advantage in product development and market expansion. Give a certain valuation premium, give the company 27 times PE in 2025, corresponding to a target price of 83.86 yuan, and give a "strong push" rating for the first time.

Risk warning: the development of the digital printing industry is less than expected; Sprinklers rely on outsourcing; overseas market risk; macro environmental risks, etc.