Key points of investment
The fur industry is leading the full-link layout. The company combines “raw materials, processing, design, production and sales”
A leading fur manufacturer integrating a complete industry chain. At the same time, it also has service platforms such as Suning International Fur Trading Center and Fur Town (International Fur City, Fur E-commerce Incubation Park) to transfer and lease real estate. In 2021, fur's main business/other revenue accounted for 43.01%/56.99%. The company's performance grew steadily after listing in 2010. Since 2015, overall revenue has shown a downward trend due to weak demand in the fur industry. Revenue affected by the epidemic fell 29.14% in 2020, the company's Danish farm was suspended due to the epidemic, and a large number of mink culled, thereby accounting for large asset impairment losses. The 2021 performance improved at a low base, with revenue increasing 22.74% /-13.03% from 2019, returning to the mother's net profit turned a loss, an increase of 105.03% /+3.14% from 2019. The large increase in net profit mainly benefited from a recovery in gross margin and a sharp decline in asset and credit impairment losses of $257 million.
Weak demand continues to put pressure on the main fur business. The company's main fur business is mainly OEM, and ODM/OBM/OEM accounted for 55.78%/41.42%/2.80% respectively in 2021. In the early days, exports were the main focus. Due to the decline in payment capacity of some overseas customers and gross margin falling short of domestic margin, the business focus gradually shifted to domestic sales in 2021. Domestic sales/exports accounted for 88.82%/11.18% in 2021. Affected by weak demand, the growth rate of the company's main fur business slowed after its listing in 2010, and began to decline in 2014. The combined epidemic in 2020 affected revenue by 27.69% and continued to decline 24.90% in 2021. The capacity utilization rate in the past two years was low, at 42.10% and 29.98% respectively. Due to the complete culling of Danish mink in 2020, there is currently a bottleneck in the supply of raw materials to the industry. The company's semi-finished products and raw materials were worth 391 million yuan in 2021, and production materials were sufficient, which is expected to benefit from the increase in industry concentration brought about by the elimination of small production capacity.
The platform transfer leasing business has a location advantage, with significant growth in 2021. Other business revenue mainly comes from the company's raw material trading center, store transfers and leasing revenue in Fur Town. It is close to Xiong'an New Area and has a location advantage. There has been significant growth since the upstream and downstream expansion began in 2013, but uncertainty about transfer revenue caused the growth rate to fluctuate. The growth rate reached 135.45% in 2021. The company continues to promote the construction of new projects in Huas Fur Town. It has established an e-commerce incubation park (basic transfer), Huas International Fur City (transfer+lease), etc. Currently, the East District of the town project is still under construction.
Gross margin remained stable, and large asset impairment losses affected short-term net profit performance. The company's gross margin basically stabilized in the 25-30% range. The gross margin fell to a negative value in 2020, partly due to inventory removal through low prices and negative gross margin sales, but it recovered to 27.87% in 2021. In recent years, the company's net interest rate has basically been in the 2-4% range. In 2017, due to investment in e-commerce platform Yushe Technology and poor business integration and large-scale impairment preparations were calculated, and large asset impairment losses were calculated in 2020 due to the complete culling of overseas mink breeding, which caused net interest rates to turn negative in the past two years. As accounting estimates change, the pressure on the profit side is expected to ease in the future.
Profit forecasts and investment ratings: Demand in the fur industry has been weak in recent years, and the supply of raw materials has been limited due to the epidemic. In the future, with the fashionization of fur products, industry demand is expected to improve. The company is a leader in the fur industry. The performance of its main business has been under pressure in recent years. Net profit was lost in '20, and recovered from a low base in '21. We expect net profit attributable to the mother to increase 10.15%/12.33%/15.33% year-on-year in 2022-2024, respectively. EPS will be 0.05/0.06/0.06 yuan/share respectively, and the corresponding PE will be 93/83/72X respectively. The valuation is high, and the “neutral” rating was covered for the first time.
Risk warning: The epidemic has repeatedly affected consumption, weak demand in the leather industry, and fluctuations in raw material prices.