Main points of investment

Huafu Fashion achieved revenue of 15.887 billion yuan in 2019, an increase of 11.04%, a net profit of 402 million yuan, a decrease of 46.49%, and a net profit of 51 million yuan, a decrease of 83.40%. Among them, revenue reached 4.826 billion yuan in the fourth quarter of 2019, an increase of 35.06%, and a net profit of-5 million yuan, a decrease of 124.77%. 2020Q1 realized revenue, return net profit and deducted non-return net profit of 23.06,0.30 and-68 million yuan respectively, compared with the same period of last year. In 2019, the company plans to pay a cash dividend of 1.41 yuan (including tax) to all shareholders for every 10 shares.

From the perspective of the split products, the revenue of the company's yarn business for the whole year was 7.157 billion yuan, a decrease of 0.89%, while the revenue of the network chain business was 8.654 billion yuan, an increase of 23.33%. Yarn and web chains accounted for 45 per cent and 54 per cent of total revenue respectively, down 5.5pct and up 5.5pct respectively from a year earlier. From a regional point of view, the company's domestic sales revenue for the year was 13.448 billion yuan, an increase of 10%, while overseas business revenue was 2.363 billion yuan, an increase of 17%.

Profit margin: the company's full-year gross profit margin reached 7.86%, down 2.66pct from the same period last year, and net profit reached 2.59%, down 2.67pct from the same period last year. From a business point of view, the gross profit margin of yarn and web chain is 12.32% and 3.60% respectively, down 3.37pct and 1.14pct respectively compared with the same period last year. The decline in gross profit margin is mainly due to the continuous decline in cotton prices leading to a decline in the company's ASP. The company's annual cotton procurement period is concentrated in the third and fourth quarters, and the cotton cost in 2019 is about 15500 yuan / ton, while the average cotton market price in 2019 is about 13500 yuan / ton, leading to a decline in gross profit margin.

Production capacity: by the end of 2019, the company's total production capacity is 1.89 million ingots. Of these, there are 1 million ingots in Xinjiang and 280,000 in Vietnam, with the remaining capacity in Jiangxi, Zhejiang and Anhui. In terms of capacity release, the company expects to release 150000 spindles of new capacity in accordance with the current progress.

Cash flow: in terms of cash flow, the company realized operating cash flow of 1.893 billion yuan in 2019, an increase of 2.379 billion yuan. The ratio of operating cash flow to net profit was 470.53%, which increased significantly. In the same period last year, cash flow accounted for-64.62%. It is mainly due to the acceleration of business operation.

Expense rate: in 2019, the company's sales expense rate / management expense rate / financial expense rate / R & D expense rate was 1.36%, 2.89%, 2.30%, 0.65%, respectively, compared with the same period last year, reduced 0.32pct/, increased 0.11pct/, increased 0.18pct/, decreased 0.06pct. The expense rate remains stable.

Profit forecast: the company's revenue in 2020 and 2021 is 127.25 and 14.622 billion, down 19.9% from the same period last year, up 14.9%, and net profit is 3.55% and 648 million yuan, up-11.9% and 82.9%, respectively.

Risk hint: consumption recovery is not as expected and cotton prices have fallen sharply.