1H22 performance is in line with our expectations
Zhejiang Longsheng announced 1H22 results: revenue of 9.075 billion yuan (YoY+7.9%) and net profit of 1.425 billion yuan (YoY-43.6%). The decline in company profit in the first half of the year was mainly related to the decline in fair value of invested stocks, PE projects and equity investment income and other factors. 1H22 deducts a non-net profit of 1.159 billion yuan (YoY-16.2%), which is mainly related to the rise in raw material costs and the decline in the price of major intermediate products, and the performance is in line with our expectations. The dye sales volume of 1H22 Company is 124300 tons (YoY-4.0%), which is still at a good level in history, and the average sales price of dyes is 39060 yuan / ton (YoY+7.7%). The sales volume of intermediates in 1H22 Company is 42500 tons (YoY+5.9%), and the average selling price of intermediates is 48127 yuan / ton (YoY+3.3%).
The corresponding 2Q22 operating income is 4.569 billion yuan (YoY + 7.8%), the net profit is 955 million yuan (YoY-34.4%), and the non-net profit is 605 million yuan (YoY-1.7%, QoQ+9.2%).
Trend of development
The company shows strong performance resilience. According to the data of the National Bureau of Statistics, from January to June 2022, the output of printing and dyeing fabrics produced by enterprises above the scale of the printing and dyeing industry was 26.906 billion meters, a decrease of 5.52 percent compared with the same period last year. From the monthly output, the output of printing and dyeing fabric maintained a steady growth from January to February. Affected by the epidemic in March and April, the cumulative growth rate of printing and dyeing fabric production gradually decreased compared with the same period last year, especially in April when the printing and dyeing fabric production reached a stage low. The overall situation of the domestic epidemic situation is good, and the output of printing and dyeing fabrics rebounded for two consecutive months in May and June, increasing by 6.29% and 0.30% respectively compared with the previous month. We believe that the negative impact of the epidemic on domestic dye demand is expected to gradually fade, and downstream demand is expected to be gradually repaired. We believe that under the adverse impact of the epidemic, the company's 2Q22 performance still achieved positive growth month-on-month, showing a strong performance resilience.
The price of dyes is at the bottom. Due to the intensification of competition in the domestic dye market, the dye price is still at the bottom. According to Zhuochuang Information, as of August 19, 2022, the price of disperse / reactive dyes in East China is 21500x22000 yuan / ton respectively. We believe that dye prices are still fluctuating at the bottom in the short term.
The real estate has entered the harvest period. The company focuses on the Shanghai regional real estate market. The construction of Huaxing New Town project started on February 15, 2022, the site project of Longsheng Fuxinli project was completed, and some residential and commercial properties were transferred. Fuxinhui investment and decoration work continued to advance. We believe that 2H22 Longsheng Fuxinli project is expected to achieve delivery, contribution to revenue and profits.
Profit forecast and valuation
Keep profit forecasts for 2022 and 2023 unchanged. The estimated net profit of returning home is 40.63 / 4.212 billion yuan respectively. The current share price corresponds to a price-to-earnings ratio of 7.7 times 2023 / 7.5 times earnings. To maintain an outperforming industry rating, due to the downward valuation of the industry as a whole, we have lowered our target price by 13.1% to 13.47 yuan, corresponding to 10.8 times 2022 price-to-earnings ratio and 10.4 times 2023 price-to-earnings ratio, which is 39.3% higher than the current stock price.
Risk
The demand for dyes is lower than expected, the production capacity of dyes / intermediates is greatly expanded, and there is a risk that the market will decline significantly.