This report is read as follows:
The moderate rise in cotton prices in 2023 overlaps the improvement in downstream demand, and the company's profit margin is expected to be significantly repaired; at the same time, the new production capacity will be put into production in 2023, helping the hosiery industry to increase its market share and expand markets such as towels and yarn-dyed fabrics.
Main points of investment:
Investment advice: considering the pressure on the company's profits in 2022, we downgrade the EPS from 2022-2024 to 1.37max 2.02max 2.70 yuan (before the adjustment, it is 1.81pm 2.32pm 2.97 yuan, respectively). Considering that the company has a leading position in the industry and strong growth in the future, the company is given 13 times higher than the industry average of PE in 2023, raising the target price to 26.26 yuan and maintaining the "overweight" rating.
Domestic color yarn production leader, 2022 profit pressure. The company is the leading producer of colored yarn in China, with a production capacity of about 66000 tons by 2021, with a leading cost advantage and warehouse production advantage. In recent years, with the gradual expansion of production capacity, the company's performance has grown rapidly. The CAGR of income / return net profit in 2017-2021 is 13.1% and 33.2% respectively. In 2022, under the background of domestic cotton price decline and weak downstream demand, the company lowered the product price many times, but the stock germ yarn price was higher, which led to a significant decline in the company's profit margin. 2022Q1-3's homing net profit fell 13.8% compared with the same period last year, and gross profit margin / net profit margin decreased 5.7pct/ and 2.1pct respectively compared with the same period last year.
2023: the year of profit margin repair. At present, domestic cotton prices have rebounded and domestic demand has gradually recovered, which is expected to lead to an increase in product prices. At the same time, the company's high-priced germ yarn inventory has been exhausted, and we expect the company's profit margin to be significantly repaired in 2023.
2023: the year when the new capacity is put into production. From 2018 to 2021, the company's capacity utilization rate is more than 100%, and the production and marketing rate is more than 97%. The existing production capacity is difficult to meet the needs of subsequent development. The company currently has an annual output of 30,000 tons and an annual output of 60,000 tons of high-quality bobbin dyeing projects under construction, which will be put into production in 2023. It is estimated that the company's bobbin production capacity will increase to 160000 tons by the end of 2023, and the output is expected to be 120000 tons in 2023. The new production capacity lays a good foundation for the company to continue to improve the market share of the hosiery industry and enter the market of towels and yarn-dyed fabrics.
Risk Tip: the risk of raw material price fluctuations, market development is not as expected