Event
Event 1: the company released its annual report in 2019, with operating income of 4.8 billion yuan in 2019, an increase of 6.9% over the same period last year, and a net profit of 130 million yuan, an increase of 14.7% over the same period last year. Basic earnings per share was 0.103 yuan, an increase of 14.6% over the same period last year.
Event 2: the company issued a forecast for the first quarter of 2020, which is expected to achieve a net profit of 4200 to 50 million yuan in the first quarter of 2020, an increase of 125 percent over the same period last year, and basic earnings per share of 0.0334 to 0.0398 yuan.
Event 3: the company issued a non-public stock offering plan for 2020, with a proposed offering price of 3.70 yuan per share, and the total amount of funds to be raised is expected to be no more than 555 million yuan to repay bank loans and supplement liquidity.
Brief comment
The company's new production capacity entered the first echelon of spandex, and the epidemic accelerated the withdrawal of small production capacity: in 2019, the market prices of spandex 20D, spandex 30D, spandex 40D, pure MDI and PTMEG were 37404 yuan / ton, 35912 yuan / ton, 31143 yuan / ton, 19538 yuan / ton, 15859 yuan / ton, respectively, year-on-year-10.2%,-10.2%,-11.8%,-30.1%,-13.0% The price differences of spandex 20D, 30D and 40D are 23340 yuan / ton, 21848 yuan / ton and 17079 yuan / ton respectively, compared with-3978 yuan / ton,-3805 yuan / ton and-3921 yuan / ton. From 2014 to 2019, the company continued to increase the spandex industry, and the company's spandex production capacity increased steadily from 20, 000 tons to 120000 tons, accounting for 13.4% of the national production capacity, ranking first in the industry. The 40,000 tons of production capacity put into production in March 2019 was steadily put into production in the third quarter. Affected by the epidemic, downstream demand is weak, the current inventory is high, spandex industry recovery is delayed, but the epidemic will accelerate the withdrawal of small production capacity. In addition, in the COVID-19 epidemic, the increase in the amount of masks led to a rise in demand for coarse denier spandex, ushering in a wave of "small spring" before the recovery of the industry.
The main raw materials of mask earbands are spandex 140D and nylon 140D double strands (70D/24F). At present, the price is rising rapidly and the goods are difficult to obtain. The price of spandex 70D/140D rose from 30000 yuan / ton to 38000-43000 yuan / ton, an increase of about 35%. According to Zhuochuang information incomplete statistics, the national daily output of spandex 70D/140D is about 400,500tons, spandex manufacturers have plans to change production, production capacity continues to increase, it is expected that the recent daily output of spandex will gradually increase to more than 500tons. The company also has part of its production capacity to switch to 70D/140D spandex products for masks, and its profit exceeds the losses caused by weak demand, high inventory and falling prices for conventional models (20D/30D/40D), which thickens the company's performance.
Viscose filament ranks first in the country, with good performance in the first quarter, and the demand for exports affected by the epidemic has weakened recently: since the second half of 2018, the price spread of viscose filament has continued to rise, becoming the main driver of the company's performance growth. In 2019, the prices of dissolved pulp, caustic soda and viscose filament were 6406 yuan / ton, 3094 yuan / ton and 37782 yuan / ton, respectively, compared with the same period last year. The price difference of viscose filament was 24742 yuan / ton, an increase of 2794 yuan / ton over the same period last year, and a record high of 26702 in the first quarter of 2020. Since the end of March, affected by the overseas epidemic, the price spread began to decline, temporarily forming a negative impact on filament demand.
In 2019, Xinxiang chemical fiber viscose fiber has a production capacity of 70,000 tons, accounting for 33 percent of the national total, and is expected to reach 80,000 tons in 2020, further consolidating its leading position.
Among them, the company's continuous spinning process capacity accounts for more than 70%, and the production efficiency is high, while the domestic average level is only 42.9%.
The introduction of war investment to accelerate the layout of Xinjiang, targeted additional issuance to improve the capital structure: the company's short-term loans were 849 million yuan at the end of 2019, an increase of 257 million yuan over 2018; long-term loans at the end of 2019 were 2.025 billion yuan, an increase of 443 million yuan over 2018; and financial expenses were 123 million yuan in 2019, an increase of 61.5 percent over the same period last year. At the end of 2018, the asset-liability ratio of the company was 53.5%, which was 45.2% higher than the industry average. Considering the above reasons, the total amount of funds to be raised by the company's non-public offering of shares will not exceed 555 million yuan, of which 400 million yuan will be used to repay bank loans and the rest will be used to supplement the working capital. The target of this private placement is Tumushuk City Investment Group Co., Ltd., the introduction of strategic investors. The company set up a wholly-owned subsidiary Xinjiang Egret Fiber Co., Ltd. as early as 2011 in Xinjiang. The subsidiary is mainly responsible for the production of cotton pulp, the raw material of the company, with an annual production capacity of 40,000 tons. Tu City Investment ensures that the company has access to raw materials such as cotton and velvet, and is close to Xinjiang subsidiaries to reduce freight costs, provide support in logistics and transportation, import and export customs clearance, and assist the company in opening up international and domestic markets.
Profit forecast and valuation: the company's net profit in 2020, 2021 and 2022 is 228 million yuan, 338 million yuan and 420 million yuan respectively, EPS is 0.18 yuan, 0.27 yuan and 0.33 yuan respectively, PE is 23.3X, 15.7X and 12.7X respectively, maintaining the "buy" rating.
Risk hint: macroeconomic decline, project production is not as expected