Sino-US trade friction affects income, RMB depreciation increases net profit
In 2018, the company achieved operating income of 4.169 billion yuan, an increase of 4.12% over the same period last year, a net profit of 390 million yuan, an increase of 8.34% over the same period last year, and a non-parent net profit of 334 million yuan, an increase of 43.08% over the same period last year. The higher growth rate of non-homed net profit is mainly due to the decrease in investment income of entrusted loans divided into non-recurrent profits and losses, but the corresponding decrease in interest expenditure and deduction of non-net profit; the growth rate of net profit is higher than that of RMB depreciation in the past 18 years, and the increase in exchange gains leads to a decrease in financial expenses compared with the same period last year.
On a quarterly basis, 18Q1-Q4 revenue increased by 13.28%, 7.16%, 5.79% and-8.40% respectively, and net profit was-25.20%, + 11.16%, + 47.72% and-1.01%, respectively. Over the past 18 years, income growth has slowed quarter by quarter, and Q4 has declined, mainly due to the export environment affected by Sino-US trade frictions and reduced enthusiasm of downstream customers to place orders (but the company's products are not on the US proposed tariff list); net profit 18Q2~Q3 has become a regular profit, and the decline in Q4 income is less than income, mainly due to the increase in exchange earnings and gross profit margin caused by the depreciation of the RMB exchange rate.
19Q1 achieved an income of 926 million yuan, down 8.05% from the same period last year, with a net profit of 73.28 million yuan, an increase of 63.47% over the same period last year, deducting 35.07 million yuan from non-parent net profit and an increase of 10.54% EPS0.22 yuan over the same period last year.
Among them, the income side has not improved due to the weak export demand side, but the larger increase in net profit is mainly due to the increase in income from changes in fair value (the asset management plan of Chongshan Investment, a subsidiary). In addition, the year-on-year depreciation of the exchange rate promotes the reduction of financial expenses and the increase of gross profit margin.
Revenue split: the income of yarn-dyed fabrics decreased slightly, while the growth rate of printed and dyed fabrics and cotton yarn was relatively high.
1) from a sub-industry point of view, 79% of the textile and clothing revenue in 2018 was dominated by the company, with an increase of 3.15% over the same period last year; in addition, thermoelectricity and other (mainly cotton sales) accounted for 1.67% and 19.60% respectively, which were-15.87% and + 10.55% respectively compared with the same period last year.
2) in terms of sub-products, the company's main products are yarn-dyed fabrics (39% of revenue), printed and dyed fabrics (17%), cotton yarn (11%) and clothing (10%). Revenue increased by-6.54%, 17.45%, 18.14% and 9.93% respectively over the same period last year. Printed fabric, electric steam and sewage treatment accounted for relatively small, revenue decreased by 0.79% and 15.87% respectively.
Then split according to quantity and price, in 2018, the sales volume of yarn-dyed fabrics, printed fabrics, printed fabrics, clothing and cotton yarn increased by-0.60%, 13.66%, 22.86%,-11.53% and 23.17% respectively, and the estimated unit prices increased by-5.98%, 3.33%,-19.24%, 24.25% and-4.08% respectively. Here, the sales statistics of yarn-dyed fabrics are on external sales, without considering the impact of internal set-off. If the depreciation is not taken into account, the actual order price is estimated to have changed little from 17 years. The unit price of the shirt has gone up.
3) from a regional point of view, sales in Europe, the United States and domestic have increased more, while those in Japan and other regions have declined. The regions with relatively large share of income were the domestic (45%), the United States (19%) and Europe (14%), which increased by 16.39%, 16.50% and 23.61% respectively, while those in Japan and other regions decreased by 4.51% and 27.68% respectively compared with the same period last year.
The gross profit margin has increased significantly since Q3, and the impact of exchange rate depreciation is expected to dominate.
The 18-year gross profit margin rose 1.07PCT to 20.34% year-on-year. In terms of products, the gross profit rates of yarn-dyed fabrics, printed and dyed fabrics, cotton yarn and other products are 26.07% (+ 2.53PCT), 22.72% (+ 0.88PCT), 14.22% (+ 1.06PCT) and 10.41% (+ 3.67PCT), respectively.
18Q1~19Q1 's single-quarter gross profit margin is 14.29% (year-3.37PCT), 17.95% (- 0.71PCT), 21.90% (+ 2.75PCT), 27.88% (+ 6.49PCT) and 17.30% (+ 0.50PCT), respectively.
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 55%. On the one hand, the RMB exchange rate affects the company's RMB pricing price, on the other hand, the company's net US dollar assets generate exchange gains and losses. The exchange rate of the RMB against the US dollar in each quarter of 18Q1~Q4 appreciated by 3.77%, 5.22%, 3.97% and 0.23% respectively. At the end of 18, it depreciated 5.04% compared with the end of 17, but at the end of March 19, it appreciated by 1.89% compared with the beginning of 19, but it still depreciated by 7.08% compared with the end of March 18. The exchange rate depreciated in the second and third quarters of 18, after a certain lag to the company's gross profit margin, reflected in the 18Q3~Q4 gross profit margin increased significantly compared with the same period last year; although the exchange rate of 19Q1 appreciated in the current period, it is still in a state of depreciation compared with the same period of 18Q1, which is conducive to the improvement of gross profit margin compared with the same period last year.
2) on the cost side of raw materials, the domestic spot cotton price rose first and then fell in 2018, rising to nearly 17000 yuan / ton in May (the largest increase was 7.66%), and then fell back to 16000 million yuan / ton. In October, as the supply of new cotton on the market increased, while downstream demand was weak, cotton prices continued to decline to a low of 15352 yuan / ton in early January 2019. In 2018, prices fell 2.10% and rose slightly since the beginning of the year. The range of change is small. The trend of foreign Cotlook A cotton price index is basically similar to that of domestic cotton, with prices falling 9.51% in 2018 and rising 9.15% at the beginning of the year to 88.25 cents per pound.
Generally speaking, the large range of exchange rate depreciation in 2018 has a dominant impact on gross profit margin. Up to now, the exchange rate is still depreciating compared with the same period last year, so we should pay attention to the follow-up trend.
Lower financial expenses, higher beneficiary exchange gains and lower interest expenses
In terms of expense rate, the company's expense rate during 2018 was 8.05%, a year-on-year decline of 1.92PCT, in which the sales, management + R & D and financial expense rates increased from-0.11,+ 0.26 and-2.07PCT + 19Q1 respectively to 10.75% year-on-year, with sales, management + R & D and financial expense rates + 0.34, + 2.38 and-0.80PCT, respectively.
In 18 years, the financial expenses of the company decreased significantly by 89.33% to 9.86 million yuan compared with the same period last year (92.41 million yuan in 17 years). On the one hand, the exchange gain increased, benefiting from the devaluation of RMB in 18 years, the exchange gain was 25.65 million yuan, the loss in 17 years was 22.82 million yuan, and the net increase in 18 years was 48.47 million yuan. On the other hand, the company's interest expense is reduced by 33.16 million yuan compared with the same period last year (corresponding to the company's recovery of 300 million yuan of entrusted loan investment, resulting in a corresponding reduction of 30.89 million yuan in investment income from entrusted loans, which is included in non-recurrent profits and losses).
High participation of chairman and senior executives in issuing restricted stock incentive plan
In December 2018, the company issued a restricted stock incentive plan, which intends to grant 12.948 million restricted shares to 9 people, accounting for 4% of the total share capital, of which Xue Qinglong, chairman of the company, was awarded 50% of the restricted stock. Six of the other eight are senior executives of the company (including general manager, vice chairman, chief financial officer, deputy general manager, Dong secretary, etc.), and two are heads of major subsidiaries. The restricted stock incentive plan is unlocked in three stages according to the proportion of 30%, 30% and 40%. The unlocking condition for each period is that the corresponding annual performance meets two conditions at the same time: 1) the return on net assets of the company from 2019 to 2021 (excluding the influence of share payment fees under the equity incentive scheme) is not less than 12% or 1.5 times the average level of listed companies in the same industry. 2) based on the operating income in 2018, the growth rate of operating income in 2019-2021 is not less than 5%, 10% and 15%. Restricted shares were granted at a price of 4.94 yuan per share on January 17, 2019.
The total amount of restricted stock cost amortization is 51.3857 million yuan, which is 32.0922 million yuan, 13.9373 million yuan and 5.3561 million yuan respectively in 2019-2021.
In this plan, the high participation of senior executives and the award of half of the shares by the chairman are conducive to the binding of management to the interests of the company, and take the ROE level and operating income growth as the dual assessment objectives, taking into account scale and profitability, which is conducive to the steady and sustained growth of the company's performance.
Signing the intentional agreement on investment cooperation in Indonesia, the progress of overseas investment can still be expected.
On April 4, 2019, the company worked with Indonesia PT. Kawasan Industri Kendal (Kendall Industrial Park Co., Ltd., hereinafter referred to as "KIK") signed a Memorandum of understanding on the purchase of land in the Kendall Industrial Park in Indonesia for investment in the textile and clothing industry.
The two sides reached a cooperation intention on the company's purchase of land in the Kendall Industrial Park for investment in the textile and clothing industry, as well as KIK to provide various infrastructure services for the company, strive for preferential policies for the company, assist the company in going through various formalities, ensure that the necessary conditions for the company's production and operation are met, and exclusive planning in the park. According to the agreement, the two sides will begin further discussions on land purchase on May 10, 2019.
The agreement is an intentional agreement, the specific agreement is still in the negotiation stage, the investment amount and scale of the project are not yet clear, and the specific time for the company to start construction is uncertain, which is expected to have no significant impact on the company's operating performance in the coming year.
In terms of overseas investment, the company currently has two clothing subsidiaries in Cambodia, and has planned to expand production in Ethiopia, but there has been no real progress for the time being. The signing of the MOU with KIK will help the company to form an initial investment agreement in Kendall region of Indonesia, further accelerate the pace of the company's overseas investment, and will help to strive for cooperation with foreign strategic customers, shorten the delivery time of products, and consolidate the competitiveness of the company's products.
Yarn-dyed leader has steady long-term growth, prominent advantages, and short-term attention to exchange rate changes.
We believe that: 1) the company has a prominent position as the leading industry of yarn-dyed fabrics, although the export environment is weak in the second half of the 18 years, external demand fluctuations will bring some interference to the company's orders in the short term. however, in the long run, the improvement of customer requirements of downstream brands (such as multi-batch, small batch, fast delivery, R & D cooperation support, etc.) is conducive to highlight the advantages of leading companies and improve concentration.
2) there is no obvious increase in the production capacity of the company in the short term, and the production capacity of the main products such as yarn-dyed fabrics, printed fabrics and printed fabrics is basically full, and growth will be achieved mainly through order structure optimization and efficiency improvement in the future. such as the promotion of spot fabric model of yarn-dyed fabric products, the upstream extension of printing and dyed fabric and home textile fabric (the 28 million-meter project of Xinjiang home textile fabric is supported by grey fabric). We look forward to the landing of overseas production capacity investment projects for a long time.
3) from the perspective of short-term performance, the exchange rate depreciated greatly in 18 years and made a great contribution to the company's gross profit margin and exchange gains and losses. at present, the exchange rate is still depreciated compared with the same period last year, but we still need to pay attention to the exchange rate trend.
In the 19Q1 performance, the fair value change of investment and the thickening of income are more obvious.
In addition, equity incentive amortization has a relatively large impact on performance in 19 years, and will gradually decrease in 20-21 years.
Among the important subsidiaries, the income of 18 years is 158 million yuan, the net profit is-1.16 million yuan (17 years is-7.55 million yuan), and the loss is reduced obviously. it is expected that the impact on the performance will be gradually reduced.
Overall, the company has a prominent position in the industry, the implementation of equity incentives to bind the management, and highlight the development idea of long-term steady growth. Considering that the profit and loss of fair value changes in the first quarter of 19 years exceeded expectations, we slightly raised our profit forecasts for 19 years, 20 years, and 21 years. According to the latest equity adjustment, the EPS is 1.19,1.23,1.34 yuan, corresponding to 19-year PE10 times, and the 16-year 18-year dividend yield is 5.19%, 6.06%, 4.76%, and maintains the "overweight" rating.
Risk hint: the lower-than-expected growth of downstream demand at home and abroad leads to a decline in the bargaining power of the company to take orders, the expansion of overseas production capacity is not as expected, the risk of fluctuation in cotton prices, the risk of exchange rate fluctuations, and the intensification of trade frictions affect the acceptance of orders.