Event
The company released its third quarter report. In the first three quarters, the company realized revenue of 2.142 billion yuan (- 19.61%), net profit of-657 million yuan (- 653.82%) and basic earnings per share of-1.27 yuan. In the third quarter, the revenue was 726 million yuan (- 3.71%), the net profit was-499 million yuan (- 704.35%), and the basic earnings per share was-0.97 yuan.
Adjust the business structure and focus on the cosmetics business
On September 28, the company announced its intention to transfer 100% equity in two wholly-owned subsidiaries, Qingsong Chemical and Hong Kong Longsheng. After the transfer, the company will completely divest the turpentine deep processing business. On October 11, the company announced that it planned to issue a total of 702 million to 101 million A shares (including capital) to Lin Shida, a specific target, and the total amount of funds raised was 32million to 450 million yuan (including capital). After deducting the issuance costs, all of them will be used to supplement liquidity and repay bank loans. Lin Shida is currently the company's largest shareholder Hong Kong North Bell (9.17%) of the 100% controlling shareholder, after the completion of the issue is expected to hold a total of 20.27% to 24.04% of the company's shares, becoming the actual controller of the company. It is expected that the company will concentrate its resources on the development of cosmetics business and fully enjoy the high growth dividend of China's cosmetics industry by making use of existing categories, research and development, production capacity and customer advantages.
Short-term performance is under pressure, provision for impairment of goodwill
The company's gross profit margin was 4.94% (- 11.85pct) in the first three quarters and 4.88% (+ 0.19pct) in Q3 in a single quarter, mainly due to the epidemic, industry regulatory policies and macroeconomic factors, and most of the downstream customers were under pressure; superimposed in recent years, due to rising commodity prices, supply chain shortages and other factors, the purchase cost of major cosmetics raw materials increased year on year. The company's net interest rate in the first three quarters was-30.63% (- 35.08pct), mainly due to the company's provision of 453 million yuan for impairment of goodwill related to Northbell, which was 0 after this provision. On the expense side, the sales expense rate in the first three quarters of the company was 1.59% (- 0.06pct), the management expense rate was 6.72% (+ 1.92pct), and the R & D expense rate was 4.25% (+ 0.87pct).
Investment suggestion
The company is affected by the epidemic in the short term, and its performance is under pressure. However, as a leading domestic processing enterprise, Northbell has established barriers in R & D, production capacity, customers and other aspects through years of investment. After the implementation of the new cosmetics regulations, the market share of Longtou, which has high production quality, is expected to further increase. We estimate that in 2022-2024, the company's EPS will be-1.04 pound 0.28 RMB 0.37 yuan, corresponding to PE will be-6-21-16 times.
Maintain a "buy" rating.
Risk hint
Upstream raw material price fluctuation; production capacity is not as expected; epidemic situation is repeated and so on.