Zhuo Lang Intelligence issued an announcement that based on the fact that the current stock price seriously deviates from the company's value, it plans to carry out a buyback in the next 12 months, with a repurchase amount of not less than 600 million yuan and no more than 1.2 billion yuan. The repurchased shares will be used in the company's equity incentive plan and employee stock ownership plan. The company released its semi-annual report in 2019. Due to trade frictions and other external factors, the demand for textile machinery was greatly affected. The income in the first half of the year was 3.82 billion yuan, down 17.5% from the same period last year. Shareholders belonging to listed companies deducted 296 million yuan in non-net profit, down 15.1% from the same period last year.
The low prosperity of the industry is caused by external factors such as intensified competition and trade frictions. Factors such as intensified international competition, repeated trade frictions between China and the United States, and shrinking global liquidity have slowed down the growth rate of fixed asset investment in the textile industry. According to the data released by the China Cotton Textile Industry Association, cotton prices in the upper reaches of the textile industry continued to decline, with China's cotton textile boom index of 46.43 in June 2019, down 1.07 from the beginning of the year. In the first half of 2019, the production, marketing, efficiency, investment and other operational indicators of China's textile industry fluctuated, of which the completion of fixed asset investment in the textile industry decreased by 1.3% compared with the same period last year, with a growth rate of 2.6% and 7.8% respectively compared with the same period last year and the first quarter of this year. Although the domestic pressure is greater, the trend of the future transfer of the spinning industry from China's coastal areas to China's Xinjiang, India, Uzbekistan and other emerging economies will continue.
Income and net profit declined in the first half of the year. In the first half of the year, the company realized operating income of 3.816 billion yuan, down 17.5% from the same period last year. Of this total, the operating income of the spinning division was 3.285 billion yuan, and that of the technical division was 530 million yuan. The net profit belonging to shareholders of listed companies was 278 million yuan, down 23.4% from the same period last year. The non-net profit of shareholders belonging to listed companies was 296 million yuan, down 15.1% from the same period last year.
The income of all regions has declined to varying degrees, and the growth in emerging regions is obvious. Affected by global trade frictions, the company's sales in many regions of the world have declined to varying degrees. In the first half of the year, sales in China were 2.17 billion yuan, down 10.8% from the same period last year, and sales in India were 283 million yuan, down 19.4% from the same period last year. Turkey, which is affected by US sanctions, saw the most significant decline, down 73.4 per cent from the same period last year. In other Asian regions where the company focuses on strategic layout, revenue for the current period increased by 14.9%, including 413% in Turkmenistan, 226% in Pakistan and 46% in Uzbekistan.
Operating cash flow is under pressure due to related party transactions and is expected to improve by the end of the year. Operating cash flow in the first half of 2019-1.1 billion yuan. On the one hand, the decline in operating cash flow has a lot to do with the textile machinery payment model. Due to the high value of textile machinery equipment, customers often pay back slowly through financing channels such as bank loans in the procurement process. On the other hand, related transactions also lead to higher accounts receivable. The company's sales to the affiliated company Litai in the first half of the year is 1.07 billion yuan, and it is expected that the group will have a large amount of money back at the end of the year, when the cash flow is expected to improve.
The large buyback plan demonstrates the company's confidence. The company issued an announcement earlier, based on the confidence in the company's sustained and stable development in the future and the recognition of the company's value, combined with operating and financial conditions and other factors, to promote the company's share price to match the intrinsic value, the company plans to carry out a large repurchase plan, the repurchase amount is not less than 600 million yuan, no more than 1.2 billion yuan. The share buyback will be used in the equity incentive plan and employee stock ownership plan. It will also further improve the company's long-term incentive mechanism and fully mobilize the enthusiasm of the company's senior managers, core and backbone personnel.
Performance forecast and investment advice. Although the current prosperity of the industry is low, we believe that the long-term demand for textile machinery is relatively stable, and Zhuo Lang will continue to benefit from the transfer of cotton yarn industry to Belt and Road Initiative countries such as Xinjiang and Central and Western Asia. Forecast Zhuolang intelligent 2019 income of 8.5 billion yuan, return to the mother net profit of 805 million yuan, corresponding to PE 16.8 times, to be cautiously recommended rating.
Risk hints: the progress of cotton yarn production capacity transfer is lower than expected, the high-end rate of spinning machinery is lower than expected; foreign currency exchange rate fluctuates sharply, trade friction continues to escalate; stock prices fluctuate greatly caused by the reduction of restricted shareholders.