1H21 performance meets the forecast

The company announced its results for the first half of 2021: revenue of 12.526 billion yuan, year-on-year + 52.49% (compared with 1H19,22.91%), and net profit of 1.288 billion yuan, an increase of 1.278 billion yuan over the same period last year (173.44% compared with 1H19mm), which is in line with the performance forecast. At the same time, the company pays an interim dividend of HK50 cents per share.

The volume and price of yarn has increased significantly, and other businesses have achieved relatively rapid growth. During the period, the company's revenue benefited from the recovery of demand in the domestic and European and American markets and the return of orders from India, which contributed to the growth of the company's demand for textiles. According to the category, the yarn business is the main driving force of the company, with revenue from + 58.29% to 9.875 billion yuan, accounting for + 2.98ppt to 78.84%. Thanks to the pick-up in market demand and the past. After three years of production capacity construction, yarn sales were + 37.84% to 417100 tons compared with the same period last year, and the average sales price was + 14.84% to 23693 yuan / ton compared with the same period last year, driving its gross profit margin + 13.2ppt to 23.78%. Woven fabric revenue from + 47.21% to 1.161 billion yuan compared with the same period last year, accounting for 9.27%, mainly because its sales volume + 52.02% dint 2Q21 order has basically recovered. In addition, grey cloth / knitted fabrics / jeans / nonwovens are + 11.3%, 47.26%, 9.75%, 170.22% and 4.52, respectively, compared with the same period last year. 3.15 / 42 million yuan.

The order resumes-the raw material price rises, the profitability increases greatly. 1H21's gross profit margin reached an all-time high of + 11.37 ppt to 22.78% compared with the same period last year, mainly due to the rise in yarn prices with the price of raw materials and the company's lower procurement costs. In terms of expenses, the sales / management / financial expenses are respectively year-on-year,-0.37 ppt to 3.73%, 5.48% and 0.18%, respectively, compared with the same period last year. Taking into account the increase in income tax (+ 305 million yuan) and the decrease in other operating income (- 217 million yuan), overall, the company's parent net interest rate is + 10.2ppt to 10.3% compared with the same period last year.

Improved inventory turnover efficiency and ample cash reserves. In terms of operation, the company's inventory turnover days during the period were-48 to 80 days compared with the same period last year, and 31 days compared to the same period in 2019. Inventory turnover efficiency has greatly improved compared with the pre-epidemic level, mainly due to the recovery of terminal demand at home and abroad and the increase in yarn sales. In addition, the company's bank and cash balance during the period was 3.286 billion yuan, an increase of 342 million yuan over the beginning of the year.

Development trend

On the production side, capacity utilization in southern factories has declined due to epidemic prevention requirements in Vietnam, and if the situation continues, we expect the yarn business to be affected, and the company expects the annual knitted fabric sales target to fall to 20,000 tons.

Profit forecast and valuation

In view of the rapid growth of 1H21's revenue and the large increase in gross profit margin and our expectation of a year-on-year decline in gross profit in 22 years, we have increased our 21-year net profit by 60.9% to 1.981 billion yuan and lowered 22-year net profit by 5% to 1.459 billion yuan. The current stock price corresponds to 4.6 times PE in 21 / 22, maintaining the industry rating of outperforming and basically reflecting the rising cotton price in the stock price, keeping the target price of HK $14.39 unchanged for 21 years. The corresponding 21UX 22 is 8x PE for 6max, which is 23.8% upside compared to the current stock price.

Risk

The epidemic repeatedly affected the construction period and market demand, raw material prices fluctuated, and capacity expansion was less than expected.