Main points of investment:
Upgrade to overweight rating: affected by overseas epidemic, the company's Q3 performance is still under pressure, but there has been a trend of improvement. Reduce the company's EPS to-0.11 yuan (- 0.28) yuan in 2021-2022, and maintain the EPS to 0.26 pound 0.30 yuan in 2020-2022. With reference to comparable peers, the company will be given 32 times PE in 2021, raising the target price to 8.21 yuan and upgrading to overweight rating.
Overseas epidemic prevention and control superimposed cotton price decline, Q3 performance continues to be under pressure. The company's Q3 revenue in a single quarter was 3.103 billion yuan, down 16.40% from the same period last year, and the net profit attributable to the parent was-54 million yuan, down 197.29% from the same period last year. In the first three quarters, the company's expansion of overseas markets was not as expected, and the company's orders declined, which superimposed the impact of the decline in raw material prices, resulting in a reduction in capacity utilization and an increase in operating costs. With the warming of Q4 domestic demand and the recovery of overseas demand, the company is expected to usher in the overall recovery of orders and product unit prices.
Product prices have fallen, operating costs have risen, and gross profit margins have fallen sharply. The company's gross profit margin in the first three quarters fell 4.96pct to 2.56% compared with the same period last year. On the one hand, the price of the company's cotton yarn business and web chain business was affected by the epidemic, on the other hand, the proportion of net chain business with lower gross profit margin increased. Q4 gross profit margin is expected to recover as the company raises the price of its products at the end of September.
Demand recovery + cotton prices rebounded, the company's inflection point was established. Due to the return of Indian orders + recovery of overseas consumption, cotton prices of raw materials upstream show an upward trend, the company complies with the trend of price increases, Q4 profits are expected to increase. As one of the leaders of color spinning, the company already has the production capacity layout of inland, Xinjiang and Vietnam, the customer structure is stable, the current industrial recovery trend has appeared, and the company scale advantage can be reflected in the next recovery process.
Risk hint: the order resumes less than expected and the product price increase falls short of expectation.