Main points of investment
Event: the company announced three quarterly reports that in the first three quarters of 1919, the year-on-year increase of 3% to 11.06 billion yuan, the return of net profit decreased 44% to 407 million yuan. Specifically, in the third quarter, the income dropped 6% to 3.71 billion yuan, and the return net profit decreased 69% to 55.76 million yuan. The decline in revenue and profits in the third quarter is mainly related to the centralized processing of yarn and net chain inventory.
Yarn main business: increase inventory handling efforts, driving 19Q3 single-quarter cotton business income increased by 25%, but the gross profit margin is therefore limited. After three consecutive quarters of weak internal and external demand, in order to focus on yarn inventory, 19Q3 has done appropriate price reduction and inventory clearance treatment, resulting in a 25% increase in revenue per quarter, but in terms of gross profit margin, due to cotton prices are still weak, superimposed company inventory reduction sales, single-quarter gross profit margin dropped to the medium unit level. In terms of production capacity, the yarn production capacity of the company reached 1.990 million spindles at the end of 18, and Xinjiang / eastern coastal / overseas Vietnam reached 10,000 spindles in 110-51-28 respectively. In addition, the Vietnamese new yarn expansion plan announced by the company in December 18 has also begun construction, and it is expected that there will be capacity release from 2020.
In terms of network chain business: Q3 single-quarter revenue decreased by 20% + compared with the same period last year. Q3 cotton prices continue to fluctuate low, the company's Q3 network chain sales are still under pressure, the transaction scale shrank compared with the same period last year, while the cost of high-priced inventory carried forward, the pressure on gross profit margin in a single quarter is also more obvious.
Financial analysis: the decline in gross profit margin affects profitability, but inventory clearance measures under turnover and cash flow improvement. In the single quarter of 19Q3, due to the large year-on-year contraction of the net chain business revenue, which accounts for more than 50% of the revenue, although the yarn business income increases rapidly, the overall single-quarter revenue still decreases by 6%. The superimposed inventory clearance operation leads to a decline in gross profit margin of 4.55pp to 2.9%, resulting in a single-quarter gross profit margin of 64%, cost-end sales, management, R & D expenses are generally stable, but financial expenses increased more than the same period last year. As a result, operating profit and return net profit fell by 69%. In terms of turnover and cash flow, inventory clearance measures effectively reduced Q3 inventory to 4.5 billion yuan, which was slightly lower than that in the same period last year. Q3 operating cash flow in a single quarter also reached 1.02 billion yuan, which improved significantly.
Profit forecast and investment rating: after the Q3 inventory clearance initiative, Q4 is light, and the start-up of new production capacity in Vietnam in 2020 is expected to bring profit increment. We expect annual income to grow by 5%, 17%, 15% to 151, 177, 203 billion yuan in 19-20-21 compared with the same period last year, and the net profit to return to the mother will increase by-39%, 35%, 14%, 4.6, 600, 000
Risk hint: instability of orders caused by large fluctuations in cotton prices and uncertain prospects for terminal demand