Exchange rate depreciation, fee control and contribution of subsidiaries have greatly increased 16-year net profit, and 17Q1 performance growth has slowed down.
In 16 years, the company achieved operating income of 3.739 billion yuan, an increase of 7.52% over the same period last year, a net profit of 394 million, an increase of 33.80% over the same period last year, and a deduction of non-net profit of 312 million yuan, an increase of 40.50% EPS1.22 yuan (including tax).
The increase in net profit over the past 16 years is mainly due to the increase in gross profit margin and the decrease in expense rate, and the increase in exchange income from the depreciation of RMB promotes the reduction of financial expenses by 31.03 million yuan. in addition, 40% of the remaining equity of the subsidiary United thermal power began to be consolidated in August 15 (16 years), the subsidiary company Tianxiang printing and dyeing, and the United Development leader gradually reduced their losses. If you do not take into account the impact of withdrawing more incentive funds to increase management costs according to performance growth, it is estimated that the net profit will be more than 400 million, with a growth rate of about 40%.
17Q1's income was 889 million yuan, net profit was 60 million yuan, and non-net profit was 37 million yuan, up 1.72%, 2.87% and-11.30% respectively over the same period last year. The decline in 17Q1 deduction of non-net profit is mainly affected by the decline in gross profit margin, and the weakening contribution of exchange rate depreciation and joint development of environmental protection and new energy. The increase in net profit is mainly due to income from the disposal of fixed assets and the increase in government subsidies.
During the 16-year period, the expense rate decreased to 9.89% 0.21PCT and continued to decline 0.49PCT to 11.05% compared with the same period last year. Among them, the rate of sales expenses and financial expenses continued to decline, while the rate of management expenses continued to rise due to the calculation of long-term incentive bonuses in accordance with the company's long-term incentive fund management methods.
Sales of cotton and cotton yarn contribute to income growth, and the leading product, yarn-dyed fabric, has been under pressure since 16Q3.
(I) split 16 years of income:
In terms of industries, over the past 16 years, textile and clothing, thermoelectricity (including electricity, steam, sewage treatment, compressed air) and others (mainly cotton sales) achieved business income of 3.151 billion yuan, 61.01 million yuan and 527 million yuan respectively, up 6.39%, 4.69% and 15.22% over the same period last year.
Among them, the income of textile and clothing products such as yarn-dyed fabrics, printing and dyeing fabrics, clothing, cotton yarn and printed fabrics was 1.781 billion yuan (- 0.35%), 563 million yuan (+ 1.65%), 504 million yuan (+ 7.73%), 294 million yuan (+ 93.58%) and 7.87 million yuan (new) respectively. The decline in revenue of yarn-dyed fabrics is mainly due to the increase in internal sales, the existence of offsetting of the combined caliber, and the increase in actual sales.
From a regional point of view, domestic sales income increased by 37.41% in 16 years, and the proportion of income increased from 28.86% in 15 years to 36.88%, mainly due to the increase in cotton sales of material subsidiaries, while the proportion of exports of major products such as yarn-dyed fabrics still accounted for about 75%. The income of the United States, Europe and Japan increased by-8.56%, + 2.04% and-49.63% respectively, while the overall export income decreased by 4.60%.
(2) analyze the quarterly changes of income:
16Q1-17Q1 revenue increased by 10.88%, 7.66%,-6.26%, 19.08% and 1.72% respectively compared with the same period last year.
The income of the products with the largest share of income (47.63%) is basically the same, but the order volume of dyed fabric with weaker external demand has decreased since Q3, the external demand of 17Q1 dyed fabric has not improved, and the high base of superposition has affected the decline of income. The 16-year income growth mainly comes from the increase in external sales of cotton and cotton yarn operated by subsidiary textile materials companies, while the larger increase in 16Q4 income is mainly due to the external sales of cotton in the current quarter. 17Q1 cotton sales continue to contribute to income growth, but the decline in yarn-dyed income increases, resulting in a slowdown in overall income growth.
The devaluation and the narrowing of the price difference between internal and external cotton are good for the gross profit margin of yarn-dyed fabric, and the overall gross profit margin is comprehensively affected by multiple plates, so there is room for upside in the long run.
In 16 years, the gross profit margin of the company rose to 21.90%, of which the gross profit margin of yarn-dyed, printed and dyed fabrics and clothing products increased by 1.43/0.37/3.18PCT respectively compared with the same period last year.
16Q1-17Q1 gross profit margin is 19.10% (+ 0.37PCT), 20.97% (+ 0.37PCT), 24.07% (+ 4.44PCT), 23.40% (- 0.04PCT), 17.66% (- 1.43PCT). Q3 gross profit margin rose significantly compared with the same period last year, mainly contributed to the depreciation of RMB exchange rate; Q4 exchange rate depreciation increased, but gross profit margin remained flat year-on-year, mainly due to the larger income contributed by subsidiary cotton sales business in that quarter, while its gross profit margin was lower; 17Q1 gross profit margin decreased mainly due to the unsaturated order volume in the quarter, which increased unit consumption and cotton sales continued to grow and drive down gross profit margin.
The company's leading product, yarn-dyed fabric (47.63% of revenue in 16 years) is greatly affected by changes in exchange rate and cotton price. on the one hand, the main raw materials are cotton (cost accounts for 55%), on the other hand, yarn-dyed fabric exports account for about 75%. Exchange rate fluctuations will affect gross profit margins and bring exchange gains and losses through RMB-denominated order prices. For 16 years, the gross profit margin of yarn-dyed fabrics rose 1.43PCT compared with the same period last year, mainly due to the depreciation of RMB exchange rate and the narrowing of the difference between domestic and foreign cotton prices (order prices refer to foreign cotton prices, and the convergence of domestic and foreign cotton prices will help the company to reduce costs).
Due to the comprehensive layout of the company's industrial chain, with many business sectors, such as yarn-dyed fabric, printing and dyeing cloth, clothing, cotton yarn, printed fabric, thermoelectricity and so on, the overall gross profit margin is comprehensively affected by the changes in the business plate and plate structure. In the long run, on the one hand, the capacity utilization of many business sectors is not yet saturated, and as these capacity is brought into full play, fixed costs will be diluted; on the other hand, the company's capacity transfer overseas is a deterministic trend, has (proposed) capacity layout in Cambodia and Ethiopia, as the cost and tariff advantages of overseas capacity projects are reflected, it is expected that there is room for overall gross profit margin to rise.
Continue to expand overseas production capacity, the integration of garment production capacity in Cambodia needs to be improved, and plans to invest and build a factory in Ethiopia
In terms of production capacity, the company currently has an annual production capacity of 210000 yarns, 160 million meters of yarn-dyed fabrics, 60 million meters of printed and dyed fabrics, 11 million shirts, 30 million meters of home textile fabrics, and 6000 tons of knitted yarn and knitted fabric dyeing.
With the continuous rise of domestic labor costs, in order to actively integrate into "Belt and Road Initiative" and implement the strategic measure of "high-end upgrade, middle-and low-end transfer", the company is actively transferring its production capacity to low-cost countries and regions. The company has successively invested (acquired) MediaTek Garment (Cambodia) Company, AMM Garment (Cambodia) Company, Lianfa Hengyu (Cambodia) Garment Company, and plans to transfer the production capacity of MediaTek clothing and AMM clothing to MediaTek Hengyu. At present, the three garment factories in Cambodia have a total production capacity of 3 million pieces, and the capacity utilization rate is about 65%. At present, the business is still being integrated, and the capacity utilization rate is expected to be improved in the future.
In addition, in December 2016, the company signed a memorandum of understanding with the Ethiopian Investment Committee and China Civil Engineering Group on the development of textile and clothing industry in Deledawa, Ethiopia. A textile industry park with spinning, printing and dyeing, yarn-dyed fabrics and ready-made clothing will be built in Ethiopia. It is expected to form a production scale of 200000 spindles, 2.5 million meters of printing and dyeing fabrics, 2.5 million meters of yarn-dyed fabrics and 3 million pieces of ready-made garments. At present, China Earth Group is carrying out preliminary planning and development, and the completion of the park construction company will be stationed for the construction of plant and equipment. It is expected that if successful, construction will start at the end of 17 years and reach production in 19 years.
In the process of the gradual transfer of textile and clothing production capacity abroad, a number of large enterprises chose to go to Southeast Asia for layout, and the company chose Africa for key layout this time. This is mainly because Africa has more advantages than Southeast Asia in the long run and is expected to be the destination for the next step of capacity transfer: 1) in terms of labor supply, Africa has more advantages than Southeast Asia and has sufficient labor supply. At present, the labor cost in Southeast Asia has an upward trend and is expected to be gradually saturated. 2) in terms of infrastructure, Africa lags behind Southeast Asia at present, but the infrastructure is built quickly after capital investment, and this disadvantage will be made up quickly. 3) in terms of industrial matching, the transportation of raw materials and auxiliary materials in Africa is less convenient than that in Southeast Asia. but its land and water and electricity cost advantage is more obvious than Southeast Asia, and Southeast Asia yarn purchase cost is higher and higher. 4) in terms of tariffs, there are no tariffs on African exports for at least 10 years, and the United States is still increasing its support to Africa, which has a trade advantage over Southeast Asia.
The layout is comprehensive, and there is still room for exploration of each business: increase in capacity utilization, reduction or reversal of losses by subsidiaries, etc.
The company has gin, spinning, dyeing, weaving, finishing, knitting, home textile, printing and dyeing, clothing industry chain, thermoelectricity, sewage treatment, brand operation and warehousing logistics in one, the whole industry chain operation. At present, the capacity utilization of many business sectors is not saturated, and there is room for growth in the future.
1) at present, the domestic production capacity utilization rate of the main products of yarn-dyed fabrics is relatively high, and the increase in short-term production is limited, but the spot fabric model adopted by the company is expected to still bring sales growth. Since 2012, the company began to sell spot fabrics to create the "JAMES FABRIC" spot fabric brand, give full play to its design and financial advantages, develop and design patterns independently, and then hold an order meeting to provide samples for customers to choose from. The company's order-taking mode has changed from OEM (pure OEM) to ODM (Design OEM) to improve the added value of products. In the process of gradually changing the demand for fabrics from large quantities and basic models to small quantities and differentiated functions, the company can use the spot fabric model to give full play to its accumulated design advantages and sell small batch orders to customers. in order to achieve sales growth.
2) at present, the capacity utilization rate of printing and dyeing fabric is not high, the design capacity is 6000 meters, and the current capacity utilization rate is less than 80%. On the one hand, the company adjusts the personnel of the printing and dyeing business to promote the release of production capacity as soon as possible, on the other hand, the share of leading enterprises such as the company will be increased under the background of higher environmental protection requirements of the industry, and the production capacity of printing and dyeing fabric can be further improved in the future. 3) the subsidiary company Lianfa Tianxiang Home Textile (acquired and listed in 2015) is engaged in home textile fabrics (printed fabric), with a design capacity of 30 million meters, the current capacity is gradually released, and the capacity utilization rate is still relatively low. It lost about 9 million last year, reversed its losses in March this year, and is expected to make a profit this year.
4) the production capacity of the subsidiary company, which is engaged in knitting fabric and knitting yarn dyeing (put into production in 2013), is gradually releasing, resulting in a loss of more than 10 million last year, reducing the loss by about 6 million, and is expected to further reduce losses this year.
5) in terms of shirts, Cambodia's subsidiary Lianfa Hengyu is currently promoting integration (business adjustment and merging into the operations of two other Cambodian garment companies). At present, Cambodia has a total garment production capacity of 3 million pieces and a capacity utilization rate of about 65%. There is also room for improvement in the future.
6) "JAMES" clothing brand currently has a small income and is still at a loss, the company will continue to pay attention to the changes in market demand through clothing brands, update stores and innovate management methods in the short term, and will not focus on investment for the time being, with the goal of reversing losses.
7) the subsidiary United Development Environmental Protection New Energy continues to promote the photovoltaic business and invests in the photovoltaic power generation project with an annual generating capacity of 5 million KWH in 16 years. At present, the operation is relatively sound, and 17Q1 profits are affected by the increase in coal prices. The company has carried out commodity futures hedging for raw material coal and cotton prices, so as to properly control risks.
Stable operation, solid leading position, short-term pressure on yarn-dyed fabrics, looking forward to a pick-up in external demand and the release of multi-business capacity
We think: 1) revenue side: under the background of weak external demand since 16Q3, orders for yarn-dyed fabrics have decreased, and revenue growth mainly contributed to subsidiaries' external sales of cotton and cotton yarn; 17Q1 external demand did not improve, superimposed last year's high-base yarn-dyed fabric revenue decline increased, although cotton, cotton yarn sales growth boosted, but the overall income growth slowed down. The sales of yarn-dyed fabrics are greatly affected by external demand, and it is expected that with the improvement of foreign economy, the demand for yarn-dyed fabrics will gradually improve, and the company as a leader is expected to benefit. With the steady progress of other businesses, the external sales of cotton and cotton yarn continue to grow, and the production capacity of printing and dyeing cloth, clothing and other businesses are gradually brought into full play, and the revenue side is expected to perform better than Q1 for the whole year.
2) at the net profit end, the company's 16-year net profit growth rate is affected by many factors, including depreciation of RMB exchange rate (increase in income, increase in gross profit margin and increase in exchange gains and losses), reduction in expense rate, annual consolidated statement of environmental protection and new energy by subsidiaries (more than 15 years and 7 months), and loss reduction contributions by subsidiaries such as leading talents and Tianxiang Home Textiles. The exchange rate depreciation over the past 17 years and the joint development of environmental protection and new energy have weakened the impact of two factors, fee control, subsidiary turnround is expected to continue to contribute to the performance.
3) RMB exchange rate is still expected to depreciate, if the exchange rate is further depreciated, the company has a prominent leading position and 75% of export income is expected to benefit, which can contribute to performance increment.
4) in terms of the second main business, at present, the company mainly focuses on environmental protection, new energy and Chongshan investment subsidiaries, with cash of 318 million in cash and 1.03 billion in other current assets at the end of March 17.
The company expects net profit to grow by-10% to 10% in the first half of 17. We are optimistic about the leading position of the company's yarn-dyed fabrics, and the recovery of external demand is expected to promote the sales of yarn-dyed fabrics and the growth brought by the improvement of a number of business benefits. at the same time, there are still extension expectations in secondary industries such as environmental protection and new energy. Raise the 17-19 EPS1.33/1.47/1.64 yuan, corresponding to 2017 PE11 times, the valuation is low and the future storage transformation is expected to maintain the "buy" rating.
Risk tips: the risk of exchange rate fluctuations, weak overseas demand, cotton prices fluctuate greatly.