The income growth is steady, and the profit growth rate of Q3 increases obviously.
From January to September 2018, the company achieved operating income of 3.212 billion yuan, an increase of 8.54% over the same period last year, a net profit of 251 million yuan, an increase of 14.34% over the same period last year, and a non-parent net profit of 209 million yuan, an increase of 41.27% over the same period last year.
On a quarterly basis, 18Q1-Q3 revenue increased by 13.28%, 7.16% and 5.79% respectively over the same period last year, and net profit was-25.20%, + 11.16% and + 47.72% respectively. Over the past 18 years, the growth rate of income has basically remained stable, and the growth rate has slowed slightly quarter by quarter, mainly due to the weakening of downstream demand and the impact of taking orders; net profit has become positive since 18Q2, mainly due to the increase in exchange earnings caused by the depreciation of RMB exchange rate, while the increase in Q3 gross profit margin also contributes.
Revenue split point of view, the first three quarters are expected to continue the reported trend, the main products in the single digits of yarn-dyed fabric steady growth, printing and dyeing fabric growth. Revenue from moonlight weaving, printing and dyeing, clothing, cotton yarn and printed fabric accounted for 42%, 16%, 9%, 10% and 1% respectively, and revenue increased by 5.13%, 20.14%,-5.91%, 12.47% and 94.15% respectively over the same period last year. The rapid growth of printed fabric is mainly due to the increase in self-order.
The gross profit margin Q3 has increased significantly, and the impact of exchange rate depreciation is expected to dominate.
The 18-year gross margin fell slightly to 18.09% from January to September compared with the same period a year earlier. Among them, the 18Q1~18Q3 single-quarter gross profit margin is 14.29% (- 3.37PCT), 17.95% (- 0.71PCT) and 21.90% (+ 2.75PCT), respectively, and the single-quarter gross profit margin is-7.10,3.66 and + 3.95PCT, respectively. Since Q2, gross profit margin has continued to rise month-on-month, and Q3 has rebounded from the same period last year.
The main influencing factors of the company's gross profit margin include exchange rate and cotton price of raw materials. 1) in terms of exchange rate, the company's export income accounts for about 60%. On the one hand, the RMB exchange rate affects the company's RMB pricing price, on the other hand, the company's dollar net assets generate exchange gains and losses. Over the past 18 years, the exchange rate has appreciated first and then depreciated. The Q1~Q3 RMB exchange rate has appreciated 3.77%, 5.22% and 3.97% respectively against the US dollar. The continuous depreciation since Q2 has promoted the improvement of the company's gross profit margin compared with the previous month. 2) on the cost side, cotton accounts for nearly 60% of the company's main product costs, with little change in cotton prices inside and outside the first three quarters, and the impact on costs is expected to be limited. The spot price index of domestic cotton rose to nearly 17000 yuan / ton in May 18 (the largest increase was 7.66%), and then fell back to 16000 million 16400 yuan / ton. With the increase in supply in the new cotton listing season since October, the price has been reduced to 15831 yuan / ton on October 26, slightly up 0.85% from the beginning of the year. At present (October 26, 2018), the price of foreign cotton is 86.80 cents / lb, down 2.85% from the beginning of the year, also showing a slight increase (up to 101.70 cents / lb, up 13.82%) and a high pullback in June.
Generally speaking, the large depreciation of the exchange rate this year has a dominant impact on the gross profit margin, and the exchange rate is still depreciating so far, so we need to pay attention to the follow-up impact.
Financial expenses and investment income have declined, and exchange gains have made a greater contribution to performance.
In terms of expense rate, during the period from January to September, the expense rate of the company was 9.08%, which decreased by 2PCT compared with the same period last year. Among them, the rates of sales, management, R & D and financial expenses were 4.39% (- 0.21PCT), 3.78%, 0.11% and 0.80% (- 1.76PCT), respectively. The rate of financial expenses (excluding exchange gains and losses) decreased significantly, mainly due to the reduction of interest payments. The exchange gain was 27.78 million yuan, which was significantly better than the exchange loss of 16.41 million yuan in the same period last year, and the net profit increased. In addition, the company's investment income has also shrunk due to the reduction of the size of financial funds.
Based on the calculation of total profits + financial expenses-investment income-exchange gains (or + exchange losses), it is concluded that the total operating profits in the first three quarters increased by single digits compared with the same period last year; the index Q3 increased by more than 25%, which is expected to mainly contribute to the increase in gross profit margin.
Yarn-dyed leading industry has a prominent position, and we still need to pay attention to the impact of short-term exchange rate.
The company expects 18-year net profit growth of-5% to 15%.
We believe that: 1) as the leader of the yarn-dyed fabric industry, the company has a clear lead. At present, the company's production capacity is mainly in China and Cambodia, the main products yarn-dyed fabric production capacity is full, is expected to grow steadily, printing and dyeing fabric, printed fabric, clothing and other production capacity still has room for development to improve efficiency and bring growth. In terms of capacity increment, the company plans to build new production capacity in Ethiopia and Xinjiang, in which the company signed a cooperation intentional agreement with China Earth Group in November 2016 to build dyed, yarn-dyed, clothing and spinning plants in Ethiopia. At present, there is no substantial progress and uncertainty in this investment; in addition, the company announced in May 2018 that it intends to build an annual production capacity of 28 million meters of home textile grey cloth and supporting yarns in Xinjiang.
2) at present, the United States imposes a 25% tariff on some Chinese textiles, and the company's products do not fall within the scope of the levy and have not yet been affected; if trade frictions intensify in the future, the company's overseas production capacity layout in Cambodia and other countries is conducive to reducing the impact of trade frictions, there is room for adjustment, and the ability to resist risks is relatively strong.
3) in terms of subsidiaries, this year, MediaTek and Tianxiang Home Textiles are expected to reduce losses and are expected to reverse losses, which will contribute to the performance (the net profit of 18H1 is-210000 yuan, which is significantly lower than that of 17H1-4.4 million yuan), and the clothing brand business is still in the development period.
4) the short-term exchange rate depreciation makes a great contribution to the company's performance, and continue to pay attention to the trend and impact of the exchange rate. Taking into account the higher-than-expected exchange rate depreciation in the first three quarters, we slightly raised the 20-year EPS to 1.18,1.20,1.28 yuan, corresponding to 18-year PE8 times, the company's leading position is prominent, the valuation is low, and the dividend yield of 6.07%, 6.07% and 7.09% in 15-17 years provides a solid return and maintains the "overweight" rating.
Risk hint: the lower-than-expected growth of overseas demand leads to a decline in the bargaining power of the company to take orders, the lower-than-expected production capacity, the risk of fluctuations in cotton prices, the risk of exchange rate fluctuations and the intensification of trade frictions.