Since 18Q4, income continues to decline, and net profit fluctuates greatly.
In the first three quarters of 2019, the company achieved operating income of 2.875 billion yuan, down 10.48% from the same period last year; net profit from its mother was 243 million yuan, down 3.20% from the same period last year; and 195 million yuan was deducted from non-net profit, down 6.43% from the same period last year. The decrease of deducting non-net profit is less than that of income, mainly due to the increase of gross profit margin exceeding the expense rate and the increase of fair value change income.
From a quarterly point of view, 19Q1-Q3 revenue is-8.05%,-17.60% and-4.95%, respectively, and net profit is + 63.47%, + 5.19% and-35.37%, respectively. Since 18Q4, the company's revenue side has continued to decline, mainly due to Sino-US trade frictions and poor domestic and foreign demand. The larger increase in 19Q1 net profit is mainly due to the increase in fair value change income and the reduction of financial expenses promoted by RMB depreciation, while the larger decline in 19Q3 net profit is mainly due to the decrease in fair value change income and the increase in asset impairment loss.
In terms of revenue separation, 19H1's income from yarn-dyed, printed fabric, clothing, cotton yarn, electric steam and sewage treatment was-21.42%,-21.01%, + 82.47%,-18.21%,-17.31% and-3.98%, respectively. The increase in printed fabric revenue was mainly due to the increase in the company's own orders. It is expected that the revenue of the main products, such as yarn-dyed fabrics, printed and dyed fabrics, and clothing, will still decline in the first three quarters, while the revenue of printed fabrics will increase compared with the same period last year.
The increase in gross profit margin exceeds the expense rate.
The company's gross margin rose 1.90PCT to 20 per cent in the first three quarters of 1919 compared with the same period a year earlier. Among them, 19Q1~Q3 's single-quarter gross profit margin is 17.30% (+ 3.01PCT), 21.26% (+ 3.31PCT) and 21.30% (- 0.60PCT) respectively.
From the perspective of the influencing factors of gross profit margin, the decline in cost is greater than the order price, as well as the devaluation of RMB exchange rate.
In terms of cotton prices, cotton prices at home and abroad have declined since the beginning of the year, and domestic cotton prices have been affected by trade frictions between China and the United States and poor domestic demand. The cotton price index has dropped 16.87 percent from the beginning of the year to 12777 yuan per ton, while the international cotton price CotlookA index has fallen 6.37 percent to 75.70 cents per pound. The company is mainly export-oriented, and the order price is more than the standard international cotton price. the decline in cotton price in the first three quarters is greater than that of foreign cotton, which is beneficial for the company to increase gross profit (the decline in cost exceeds the drop in income).
In addition, the superimposed 19Q1~Q3 RMB has appreciated by 1.89%, depreciated by 2.10% and depreciated by 2.88% against the US dollar, respectively, and has been in a state of depreciation since the second quarter, which is conducive to the company's increase in the price of US dollar orders into RMB-denominated income.
During January and September, the expense rate increased from 1.47PCT to 9.68% compared with the same period last year, with sales, management, R & D and financial expense rates of 4.07% (- 0.32PCT), 4.63% (+ 0.84PCT), 0.54% (+ 0.43PCT) and 0.45% (+ 0.52PCT), respectively. Among them, the increase of management costs is mainly to share the impact of equity incentive costs. The expense rates during 19Q1~Q3 are + 1.92,+ 3.02 and-0.67PCT respectively compared with the same period last year.
Short-term capacity expansion mainly includes Xinjiang home textile grey cloth and Indonesian clothing projects.
In terms of production capacity, the company is currently under construction mainly for home textile grey cloth and clothing, the main products such as yarn-dyed fabric, printing and dyeing cloth and other production capacity is still stable. Among them, the company announced in 2018 that it planned to build an annual production project of 28 million meters of high-grade home textile grey cloth and supporting yarns in Aksu, Xinjiang, and to build and install 160,000 spindle spinning and 400 home spinning wide-width air-jet loom production lines. up to now, the company has achieved the necessary examination and approval process and pre-procedures before the project is put into production, and the production scale of 200 looms and 50,000 yarns has been initially formed, and the related equipment is being installed one after another. It is expected to be put into production gradually.
In terms of Indonesian projects, the company announced in June 2019 that it planned to set up a subsidiary in Indonesia in cooperation with PT Ungaran Sari Garments to build a project with an annual output of 66 million meters of high-grade woven clothing. At present, the main body of the project, "Lianfa Textile (Indonesia) Co., Ltd." has been approved by the Ministry of Justice and Human Rights of the Republic of Indonesia, and construction is expected to start gradually.
In addition, the company announced in May 2019 that the previous cooperation intention agreement for the Ethiopian project had been terminated.
Short-term demand has not improved, long-term attention to the global layout of yarn-dyed leaders
We believe that: 1) in the short term, poor domestic and foreign demand affects the company's performance. 19H1's domestic and US revenue fell 9.98% and 11.79% respectively, and the company's customers tended to be cautious in placing orders, and weak demand affected the company to take orders. In the long run, the leading position of the company's yarn-dyed fabric is prominent, and in the short-term expansion of home textile and clothing products, the future production capacity will promote growth. Combined with the company's production expansion in Indonesia, the global layout will help the company to spread risks and reduce costs.
2) the change of fair value in the profit side of the company fluctuates greatly, which still needs to be paid attention to. In addition, equity incentive amortization has a relatively large impact on performance in 19 years, and will gradually decrease in 20-21 years.
3) in October 2019, the proportion of equity between the families of the actual controller of the company changed, and Mr. Kong Xiangjun transferred his 20.53% stake in MediaTek Group to his son and concerted actor, Mr. Kong Lingguo, who respectively held 20.53% equity. Kong Xiangjun and his actors together hold 57.38% of the shares of the MediaTek Group, which remains unchanged, while the MediaTek Group holds 38.89% of the company.
Taking into account the lack of improvement in domestic and foreign demand, we slightly lowered the 1921 EPS to 1.18,1.23,1.34 yuan, corresponding to 19-year PE8 times, the company's 16-year 18-year dividend yield of 6.33%, 7.38%, 5.80% to provide a solid return, maintaining 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.