Introduction to this report:
The performance fell short of expectations, and it was difficult for the traditional main business to break through. The reporting period once again invested 20 million yuan of its own capital in the Xing Fu Phase II Fund. It is expected that the direction of transformation will be TMT, energy saving and environmental protection, and healthcare, maintaining the target price of 18.97 yuan and increasing the rating.
Investment highlights:
The performance fell short of expectations, and the increase in holdings rating was maintained. The performance for the first half of the year fell short of our expectations, the main business peaked, and there are strong expectations of transformation. We lowered the 2016-18 EPS to 0.05/0.06/0.08 yuan respectively (previous value was 0.09/0.15 yuan), maintaining the target price of 18.97 yuan, and increasing our holdings rating.
The main business declined slightly, and profits maintained steady growth. 1) 2016H1 achieved revenue of 323 million yuan (-5.22%). The decline in revenue was due to an increase in the share of low-priced exports of finished products. Fee control brought profit growth. H1 made a profit of 5.2 million yuan (+28.13%), and net profit before and after deduction was 5.07 million yuan (+81.65%) and 4.01 million yuan (+106.85%), respectively. The difference was mainly government subsidies; 2) Q2 achieved revenue of 189 million yuan (-8.5%), operating profit of 3.17 million yuan (-6.18%), and net profit of 2.19 million yuan (+68.77%). Non-operating expenses increased in Q2, and net profit declined 24% month-on-month.
Expenses were properly controlled, and net interest rates rose year over year. 1) 2016H1 gross profit margin is 12.80% (-0.34pct), of which the gross margin of the bleaching/spinning/printing business increased by 0.78/1.30/12.40pct, and the weaving/dyeing business decreased by 3.65/2.37pct; 2) The sales expenses ratio was 2.38% (+0.47pct), mainly due to cotton yarn imports and exports of finished products, and the management fee rate 5.53% (-1.12pct), mainly due to the fact that Shandong subsidiaries were no longer included in the statements after the transfer. The financial expense ratio was 0.97% (-0.75), mainly due to the import of cotton yarn and the export of finished products. Reduced interest expenses and increased exchange gains and losses. The company's fee control results have been shown, with net interest rates rising 0.75pct to 1.57% over the same period.
Increase industrial investment funds and keep expectations of transformation. Following the investment in Xing Fu Fund, the company once again used its own capital of 20 million yuan to invest in Xing Fu Phase II Fund in April 2016. The key investment areas were TMT, energy saving and environmental protection, and the healthcare industry. It is already difficult to break through the traditional main business, and it is expected that the company will use equity investment to continue to explore ways to transform and seek new performance growth points.
Risk warning: The main business continues to deteriorate, transformation does not meet expectations, etc.
