In 1919, income increased and net profit declined, and 20Q1 performance was affected by the epidemic. The cash flow improvement company achieved operating income of 15.887 billion yuan in 2019, an increase of 11.04% over the same period last year, a net profit of 402 million yuan, a decrease of 46.14% over the same period last year, 51.37 million yuan in non-net profit, a decrease of 83.40% EPS 0.27 yuan in the same period last year, and a dividend of 0.141 yuan per share (including tax). The larger decrease in non-net profit was mainly due to the decline in gross profit margin, and the net decrease in non-recurrent profit and loss was 111 million yuan over the same period last year (81.21 million yuan in 18 years and-29.57 million yuan in 19 years). The net cash flow of operation increased to 1.893 billion yuan compared with the same period last year.

From a quarterly point of view, 19Q1~19Q4 's quarterly income increased by 19.78%,-1.12%,-5.88% and 35.06%, respectively, and its net profit was-21.47%,-46.16%,-68.92%, respectively, compared with the same period last year. Since the second quarter of 2018, there have been repeated trade frictions between China and the United States and weak domestic and foreign demand, resulting in fluctuations in revenue and greater profit pressure.

20Q1's operating income was 2.306 billion yuan, down 36.55% from the same period last year. The net profit returned to the mother turned to a loss of-30.44 million yuan, deducting non-net profit of-68.23 million yuan to a loss, and EPS-0.02 yuan. The performance pressure was mainly due to a significant decline in demand affected by the epidemic at home and abroad, while other income (mainly government subsidies) decreased by 56.52 million yuan compared with the same period last year.

The net cash flow of operations increased sharply by 898.39% to 375 million yuan compared with the same period last year, mainly for the company to strengthen payback and reduce procurement.

Revenue split: 19 years of yarn domestic sales pressure, foreign growth, net chain business growth in 19 years income split by business: 1) yarn business income of 7.158 billion yuan, down 0.89% year on year, split sales increased by 14.55%, estimated unit price decreased by 13.48%.

Divided by region, overseas and domestic income is 2.363 billion yuan (+ 16.81% compared with the same period last year) and 4.795 billion yuan (- 7.77%) respectively. The higher growth rate of overseas income is mainly due to the commissioning of production capacity and the increase in production contribution in Vietnam, while the domestic decline is mainly due to weak internal and external demand. In addition, Sino-US trade frictions have also led to the structural transfer of orders to Southeast Asia and other regions.

2) the revenue of the network chain business was 8.654 billion yuan, an increase of 23.33% over the same period last year.

3) in terms of yarn production capacity, the total production capacity at the end of 1919 was 1.89 million spindles, which was the same as that at the beginning of the year, of which the domestic and Vietnamese production capacity was 1.61 million and 280000 spindles respectively. Short-term affected by the epidemic, the company's production and marketing imbalance, the current speed of capacity construction has slowed down, the next step of capacity construction is expected to be concentrated overseas (mainly in Vietnam, but also consider Bangladesh, Pakistan, etc.).

The gross profit margin fell sharply compared with the same period last year. Due to the sluggish demand inside and outside the department and the decline in cotton prices, the gross profit margin of the company decreased by 2.66PCT to 7.86% in 19 years, in which the gross profit margin of yarn and net chain business was 12.32% (year-3.37PCT) and 3.60% (- 1.14PCT) respectively, and the gross profit margin of domestic and overseas sales in yarn business was 10.58% (- 0.12PCT) and 13.18% (- 4.45PCT) respectively. Mainly due to the downward pressure of gross profit margin on overseas sales.

The decline in the gross profit margin of the yarn business in 19 years is mainly due to the weakening of the prosperity of the domestic and foreign textile and clothing industry, the shrinking market and the intensified competition in the context of Sino-US trade frictions. the superimposed cotton price fell sharply in 19 years (cotton accounted for more than 60% of the company's cost, cotton prices fell 11.50% and 3.71% respectively in 1919), resulting in a decline in yarn prices and weakening the company's order profitability.

20Q1 superimposed the impact of the epidemic, and the gross profit margin was reduced by 4.50PCT to 5.94% compared with the same period last year.

There is pressure on short-term performance, and we are concerned about the stabilization of demand brought about by epidemic control at home and abroad. We believe that: 1) the company's overseas income accounted for 15% of the total income in the past 19 years. Overseas income accounts for 33% of the yarn business income (there is also indirect export), and the network chain business is for domestic sales.

Over the past 19 years, the performance of the company has been under pressure, mainly due to the impact of the external environment. The trade friction between China and the United States in the past 19 years has led to a decline in the prosperity of the industry, and every link of the industrial chain is expected to shrink inventories. The decline in cotton prices is not conducive to enterprises taking orders. Over the past 20 years, the epidemic situation at home and abroad has been affected successively. At present, the epidemic situation abroad has not been significantly improved, there is great uncertainty in external demand, and the pressure of receiving orders in the second quarter is expected to be greater than that in the first quarter.

If foreign epidemic prevention and control is effective, the impact of external demand suppression is expected to gradually weaken, it is necessary to pay attention to the recovery progress of terminal retail at home and abroad. In the case of overall operational difficulties in the industry, the company as a leader has a strong anti-risk ability and customer bargaining power, and is expected to increase its share after the end of the epidemic.

2) in terms of the company's fundamentals, the leading position of color spinning has not changed. Although the gross profit margin and capacity utilization have been damaged in the short term, the operating cash flow has improved, indicating that the company has adopted a more cautious strategy. In 20 years, based on the dominant position of the industry leader, the company will strengthen the expansion of the domestic market. in addition, the network chain business has maintained a good growth rate in 19 years, and in 20 years the company will continue to promote the front-end network chain and accelerate the development of the back-end network chain. generally speaking, we will continue to make efforts in the fields of cotton, cloth and yarn.

Considering the uncertainty brought by the epidemic at home and abroad, the demand has not improved, so we downgraded the EPS to "neutral" in the year 2021 and 22 years, and reduced the PE32 to "neutral" in 20 years.

Risk tips: the impact of the epidemic at home and abroad exceeded expectations, resulting in continued weak demand, falling cotton prices or sharp fluctuations, the promotion of new business in the network chain was less than expected, and the exchange rate fluctuated greatly.