Incident Overview
2023Q1's revenue/net profit attributable to the mother/net profit after deducting non-attributable profit/net operating cash flow was 4.73/0.23/0.19/-0.05 billion yuan respectively, up -0.24%/-13.08%/-41.69%/93.59%. The performance fell short of market expectations. Our analysis was mainly due to the company's sales growth, but prices affected the recovery of tons of net profit. Non-recurring profits and losses are mainly government subsidies of 1.33 million yuan and investment income of 2.84 million yuan. Net operating cash flow was lower than net profit attributable mainly to increased inventories.
Analytical judgment:
The slight decline in revenue in Q1 was mainly affected by prices and trade yarn. We estimate that the Q1 company's sales increased, but due to the year-on-year decline in cotton prices, the 22% drop in prices led to a slight drop in revenue, but the parent company's revenue (yarn revenue) was 499 million yuan, an increase of 1% over the previous year.
The decline in gross margin was mainly affected by the increase in prices and the share of new products. 23Q1 gross margin/net interest rate/net interest rate after deducting non-net interest rate was 11.61%/4.8%/4%, down 2.97/0.71/2.94PCT from the previous year. Our analysis mainly indicates that net profit per ton has not yet returned to the 22Q1 level. It is estimated that net profit of Q1 tons was around 1,000 yuan, down more than 50% from the previous year, but there was an improvement over 22Q4. We estimate that the pace of increase will not be too fast when the company's production capacity is tight, but the company's process technology continues to improve. The 23Q1 sales/management/R&D/finance expense ratio was 0.63%/2.33%/3.81%/-0.42%, an increase of 0.21/0.22/0.01/-0.21PCT over the previous year. Gains/revenue from changes in fair value was 0.21%, an increase of 0.21PCT over the previous year. Income tax/profit was 10.6%, a decrease of 0.6 PCT over the previous year.
The inventory is dominated by raw materials. The 23Q1 inventory was 382 million yuan, up -18% year on year and 9% month on month. The number of inventory turnaround days was 79 days, a decrease of 19 days from the previous year and an increase of 7 days from the previous month. The company's accounts receivable amounted to 23 million yuan, a decrease of 39% over the previous year and an increase of 3% over the previous month. The average number of accounts receivable turnover days was 4 days, a decrease of 2 days from the previous year, and an increase of 0.3 days from the previous month.
Investment advice
We analyzed that (1) in the short term, in order to absorb the rapid expansion of production capacity in 23 years, it may still take time for the company to raise prices; while Q2 Jingzhou production capacity will be put into operation with additional depreciation, it is expected that the improvement in net profit per ton will not be obvious; (2) the company has a logic for new product expansion in the medium to long term, but the share of new products may not increase too fast in the short term under tight production capacity; (3) considering the impact of Jingzhou's production capacity rise, the annual sales forecast will be reduced from 115,000 tons to 105,000 tons. Considering the rise in production capacity and the pace of price increases, the revenue forecast for 23/24/25 was lowered to 33.60/47.16/5,592 million yuan to 28.75/40.05/50.83 billion yuan, and the net profit returned to the mother for 23/24/25 was reduced from 269/3.54/428 million yuan to 2,28/313/385 million yuan, corresponding to 23/24/25 EPS 1.83/2.50/3.08 yuan. The closing price on April 30, 2023 was 19.95 yuan, corresponding to PE, respectively 12/9/7X, maintaining the “buy” rating.
Risk warning
Risk of fluctuations in raw material prices; risk that production progress does not meet expectations; systemic risk.