Substantial growth in performance, in line with expectations

The company released its quarterly report for 2017 on April 22, with revenue of 373 million, an increase of 4.46% over the same period last year, and a net profit of 21 million, an increase of 213% over the same period last year. Basically in line with our expectations.

The increase in the price of viscose staple fiber leads to a substantial increase in performance.

The growth in the first quarter of 2017 was mainly due to a sharp increase in the price of viscose fiber. The price of viscose fiber rose from 15300 yuan to 17400 yuan in the off-season in 2017, with an average price of 17,000 yuan per ton, up 30 percent from the same period last year.

Product prices fell in March, the company controlled the pace of sales, inventory increased by more than 100 million yuan month-on-month, resulting in income growth significantly lower than price increases. The price difference between viscose and dissolved pulp increased significantly from 200 yuan to more than 2000 yuan in the same period last year, with a gross profit margin of 17% for 1Q, an increase of 3.7PCT over the same period last year.

The company strengthens the internal potential tapping, reduces the management cost by 4 million, and reduces the expense rate by 1.45PCT. The rate of sales expenses remained stable. Sales improved, accounts receivable decreased significantly, turnover increased to 10.79 from 7.55 in the same period, inventory decreased slightly, and turnover increased from 1.41 to 1.64.

With a good supply and demand pattern, viscose staple fiber is expected to continue to rise.

Affected by the fall in commodity prices in late March, the price of viscose staple fiber was adjusted back from 17000 yuan to the current 15600 yuan / ton. The industry currently has an operating rate of 92%, and within nine days of inventory, the supply is still tight. Downstream inventory has been digested, has recently entered the market procurement, staple fiber prices stabilized a small rebound. We believe that viscose staple fiber prices will continue to rise in the second quarter, and the company's 2Q performance is expected to increase significantly compared with the same period last year.

The company launched a 160000-ton differential viscose staple fiber construction project, which is expected to be put into production in 18 years. After the completion of the new plant, the company's production capacity has increased significantly, profitability and product grades are expected to be greatly improved, which will fully benefit from the recovery of the viscose industry.

The reform of state-owned enterprises continues to advance.

Other listed companies of Nanjing Xingong Group, a major shareholder, have launched the reform of state-owned enterprises, which is expected to be accelerated. Listing for the first time for many years to start a fixed increase in production, indicating that the company has entered a new stage of development.

Consolidate the main business at the same time, the company will strengthen strategic transformation, develop the second main business, and strive to reach 50% of the new main business in 2020. We believe that the company's future extension mergers and acquisitions or asset injection is worth looking forward to.

Maintain a "buy" rating

Textile demand was lower than expected, and the 17-19 EPS profit forecast was lowered to 0.87, 1.11, 1.40, 7.4%, 14.6, 10.3%, corresponding to PE12.7/10.0/8.0. Viscose staple fiber industry supply continues to be tight, new production capacity is limited, the price increase is expected to continue. Viscose staple fiber price increase of 1000 yuan per ton, the company's EPS thickened 0.32 yuan; major shareholder Xingong Group companies have launched state-owned enterprise reform, the company's state-owned enterprise reform process will be accelerated; after the sale of real estate business, the company will still vigorously develop the secondary industry, the future extension mergers and acquisitions or asset injection is expected to be strong. Maintain the buy rating.

Risk hint: the price of viscose staple fiber fell; the progress of state-owned enterprise reform was lower than expected