Report guide
Production optimization and transformation brought significant production elasticity in '21, and a new production capacity climbing period began in '22. We are optimistic that overseas market share will continue to increase, and profit side recovery when raw materials and shipping are stable.
Key points of investment
Sales increased rapidly in 21 years, and the trend of product structure optimization was obvious
The company announced its 2021 results: achieved operating income of 465 million yuan (+31.4%), net profit of 89.5 million yuan (+15.0%), and net interest rate of 19.23% (-2.74pct). Although 2021 was still facing adverse factors such as the epidemic, sea freight and rising raw material prices, the company achieved rapid growth in sales scale with international product quality and absolute cost performance advantages, further consolidating its position as a leading domestic functional shading fabric. Looking at Q4 alone, the company's revenue was 130 million (+20.1%), and the net profit of the mother was 17.48 million (-17.1%). The revenue growth rate slowed down from the previous three quarters, mainly due to shipping delays due to difficulties with shipping reservations.
The product structure has been further optimized, and overseas markets are growing strongly. By product, sales of sun fabrics/full shading coating fabrics/semi-shading coating fabrics/dimmable fabrics/finished shading products in 2021 were 1.69/1.42/0.62/0.58/023 billion yuan respectively, up 32%/23%/18%/61%/55% over the previous year. As the company's key development products, sunshine fabrics and dimmable fabrics are the company's key development products. Regardless of technical content, unit price, gross margin or market demand, their relatively high growth rate drives the optimization of the company's product structure. In addition, finished shading products, as strategic products for the company to extend the industrial chain and cultivate the terminal consumer market, have also achieved rapid growth, increasing gross margin by 5 pct to 35%. By region, the export ratio increased by 2 pct to 66.7%, and overseas markets remained the core driving force for growth.
Profit margins are under pressure in the short term, and production optimization and transformation have achieved remarkable results
The rise in raw materials is putting pressure on gross margins, and new business investments are driving up sales expenses. The company's gross profit margin in 2021 was 37.0% (-3.4pct), mainly due to the rise in polyester fiber and PVC prices since the second half of the year, and the company's price adjustments were lagging behind. The company's sales expense rate/management expense rate/R&D expense ratio was 6.65%/6.56%/3.88%, respectively, up 3.33/0.11/0.16pct over the previous year. The increase in sales expenses was mainly due to the company's investment in equipping a dedicated operation team and contracted image spokespersons to develop a new software business, and the business has yet to contribute revenue.
Production optimization and transformation are expected to bring about 20% or more capacity flexibility. The company's total output of shading fabrics in 2021 was 35.78 million square meters (+39.5%). Considering the relatively low capacity utilization rate in 2020, we expect production capacity to increase by nearly 30% year-on-year (close to 38 million square meters) in 2021. We expect most of the increase in production capacity to come from technological transformation and process optimization, and a small portion from the commissioning of new production capacity. The sales volume of shading fabrics in 2021 was 33.39 million square meters (+33%), with a production and sales rate of 93% (-5 pct). Inventory increased by 43% to 9.49 million square meters at the end of the year, mainly due to delays in delivery. With the easing of shipping, inventory is expected to have declined.
Entering a period of rising production capacity, I am optimistic that high growth will continue in 22 years
There has been a “domestic penetration rate+overseas market share” double improvement logic for a long time. Functional shading materials have a strong replacement trend for traditional fabric curtains. However, at present, the domestic penetration rate is only 3%, and there is a big gap with 80% in Europe and the US, and there is broad long-term space. Furthermore, the company has leading design and development capabilities, customized production capacity and an integrated industrial chain, and is expected to gradually increase its share of overseas markets with its extremely high cost performance advantage.
The new production capacity will reach production by the end of the year, and the new business is worth looking forward to. The main plant of the company's fund-raising project has been basically completed and has now been put into operation one after another. Production is expected to reach by the end of '22, adding 16.5 million square meters of shading fabric and 2 million square meters of finished shading products. Currently, the company has placed orders for 3-5 months, full capacity utilization, and has established cooperative relationships with well-known international customers such as HunterDouglas and Vertilux. It is expected that the growth momentum will be strong throughout the year. Furthermore, the company's new software business is expected to launch this year, which is worth looking forward to.
Profit forecasting and valuation
The company's net profit for 22-24 is estimated to be 1.2/17/220 million yuan respectively, corresponding to a growth rate of 38%/36%/31%. The current market value corresponding to PE is 16/12/9X. As a leading domestic functional shading material company, Seodaemun will benefit from an increase in “domestic penetration+overseas market share” for a long time, and future growth will enter a period of acceleration. We believe that there is room for improvement in the current valuation of Seodaemun to maintain the “buy” rating.
Risk warning
Risk of fluctuations in raw material prices; risk of deterioration in the foreign trade environment; software business development falls short of expectations