Performance review
The performance in 2021 exceeded our expectations
The company announced its results for fiscal year 2021: revenue of HK $4.793 billion, year-on-year of 37.2%; net profit of HK $402 million, corresponding to HK $0.39 per share, or 55.9% of the same period last year. The company's performance exceeded our previous expectations, mainly due to the rapid growth of sales of sportswear fabrics and elastic ribbons under the recovery of demand. In addition, the company paid a dividend of HK19.3 cents for the whole year, with a dividend payment rate of 50%.
Sportswear and apparel business is growing rapidly, with revenue reaching an all-time high. According to the category, during the period, the company's elastic fabric was + 36.1% to HK $3.623 billion, accounting for 75.6% of the revenue. Of this total, sportswear and clothing sales were + 43.8 per cent to HK $2.439 billion, accounting for 50.9 per cent. With the company's cross-regional production capacity, excellent product quality and high-quality customer resources, sportswear and clothing categories are growing rapidly, and the CAGR reached 53.3% in 2013-21. Underwear fabric materials benefited from the recovery of market demand in Europe and the United States, with sales accounting for 24.7% from + 22.7% to HK $1.184 billion compared with the same period last year. In addition, revenue from elastic ribbon and lace was + 44.2 per cent, + 6.5 per cent to HK $10.80 and HK $90 million respectively, accounting for 22.5 per cent and 1.9 per cent respectively.
Under the scale effect, the profitability is improved. During the period, the company's gross profit margin was-0.9ppt to 23.2% compared with the same period last year, mainly due to rising raw material costs and changes in product mix. In terms of costs, thanks to the positive role of increased sales and economies of scale, the rates of sales, administration and R & D expenses are-0.3,0.3 and-0.2ppt to 4.2%, 7.0% and 2.1%, respectively. Overall, the company's net interest rate (including minority equity) was + 1.3ppt to 8.4% compared with the same period last year.
Trend of development
Considering that there are still repeated outbreaks in 2022, pressure on the global economy, it is difficult for terminal demand to maintain the high growth in 2021, and the prices of raw materials such as chemical fiber are high, we expect the company's performance to grow moderately. In addition, in order to meet the growing needs of customers, the company plans to actively explore the possibility of capacity expansion at home and abroad, improve capacity utilization in Sri Lanka and prepare for long-term sustainable development. We believe that in the future, the company is expected to maintain the leading edge of women's underwear materials and further increase the penetration of sports and leisure clothing.
Profit forecast and valuation
We raised net profit in 2022 by 3.6 per cent to HK $457 million and introduced a profit forecast of HK $531 million in 2023. The current stock price is 5 times and 4 times PE in 2023, respectively, maintaining a neutral rating.
Taking into account the strong market resilience of the company as the leader of elastic fabrics, as well as the growing trend of sports brand customers and the domestic market, we raised our target price by 26.8% to HK $2.63, corresponding to 6 and 5 times PE in 2023, which is 16.4% higher than the current stock price.
Risk.
The risk of rising prices of raw materials, downstream demand is weak, capacity expansion is not as expected.