Incident Overview
2023H1 The company's income/net profit/net profit after non-attributable net profit/net operating cash flow was 11.07/0.43/0.34/150 million yuan, respectively, a year-on-year increase of 6.18%/-63.89%/-57.41%/251.22%, in line with the expectations of the pre-reduction announcement. Net profit growth rate was significantly lower than revenue mainly due to price pressure, reduced government subsidies (more than 50 million yuan), and bad debt accrual; net operating cash flow was higher than net profit due to increased accounts payable.
2023Q2 Company's revenue/net profit/net profit after non-attributable net profit/net operating cash flow was 6.34/0.20/0.15/155 million yuan, respectively, an increase of 11.54%/-78.10%/-68.14%/24.23% over the previous year. Last year's government grants were mainly reflected in Q2.
Analytical judgment:
Prices are under pressure due to sluggish demand, and the increase in sales volume comes from increased production. The company's 23H1 production and sales volume both achieved positive year-on-year growth. Domestic/foreign revenue increased 5.95%/19.99% year-on-year, that is, domestic sales/export revenue was 1,089/118 million yuan respectively, and domestic sales accounted for 98%. According to the company's announcement, dyeing fees for main products were pressured by the scale of demand in the downstream consumer market, and there was a large year-on-year decline.
Processing fees have not recovered, leading to a decline in gross margin. The decline in net interest rate is higher than gross margin mainly due to increased credit impairment losses and reduced government subsidies. (1) 23H1's gross margin was 12.13%, a year-on-year decrease of 3PCT, mainly because the company's processing fees have not recovered since adjustments were made in the second half of 2022. 23H1's net interest rate/non-net interest rate was 3.9%/3.07% respectively, down 7.6%/4.7% year on year. Judging from the cost ratio, 23H1 sales/management/R&D/financial expenses ratio was 0.57%/2.32%/3.44%/-0.02%, respectively, up 0.1/0.16/-0.16/0.42PCT. The decrease in financial expenses was mainly due to interest payments on convertible bonds. Credit impairment losses/revenue increased by 1.8 PCT to 1.80% year on year, mainly due to prepaid accounts in Henan Xinye to account for bad debts. The share of net income from non-operating income decreased by 4 PCT year on year, mainly due to the decline in government subsidies; the share of net income from investment increased by 0.7 PCT to 0.78% year on year; and the income tax rate decreased by 1.3 PCT to 0.36% year on year. (2) 23Q2 The company's gross margine/net interest rate/non-net interest rate was 12.52%/3.22%/2.35%, respectively, down 3.11/13.2/6.1 PCT, mainly due to a total increase of 0.8 PCT during the period, credit impairment loss/revenue growth of 3.1 PCT; net non-operating income falling 9.1 PCT; net income from non-operating income falling 9.1 PCT; the share of net investment income increased 1.1 PCT year on year; income tax rate decreased 2.33 PCT year on year.
Inventories declined year over year, and cash flow remained healthy. 23H1's inventory was 370 million yuan, a year-on-year decrease of 21%. Of these, raw materials/in-products/finished products accounted for 50%/7%/43%, an increase of 14/2/-16PCT over the previous year. The number of inventory turnover days was 67 days, a decrease of 24 days from the previous year. The company's accounts receivable amounted to 22 million yuan, a year-on-year decrease of 30%. The average receivables turnover day was 4 days, a year-on-year decrease of 1 day. The company's accounts payable were 190 million yuan, an increase of 36.48% over the previous year. The average payable turnover was 32 days, an increase of 7 days over the previous year.
Investment advice
We analyze that (1) In the short term, the company's rapid expansion capacity has been slow to return to normal levels due to sluggish terminal demand; the company plans to exceed 112,000 tons per year in tube dyeing and 3,000 tons in mercerized cotton in 23 years. We expect sales of socks yarn and new categories to reach 85,000 tons this year, and annual production capacity will expand rapidly in the future; (2) In the medium term, the new category market is larger than socks. We expect the company to continue to seize market share of more than 100,000 tons in the medium term.; (3) The company intends to invest 110,000 tons of high-quality tubular yarn are expected to provide long-term production capacity guarantee. Considering that the net profit recovery in tonnes fell short of our expectations, we lowered the 23-25 revenue from 28.75/40.05/5083 billion yuan to 2,69/3,09/5083 billion yuan, and the net profit for 23-25 was 2.28/3.13/385 million yuan to 1.52/234/330 million yuan, corresponding to the 23-25 EPS being lowered from 1.83/2.50/3.08 yuan to 1.01/1.56/2.20 yuan. The closing price on August 28, 2023 The corresponding PE of yuan is 15/10/7X, respectively, maintaining the “buy” rating.
Risk warning
Risk of fluctuations in raw material prices; risk that production progress does not meet expectations; systemic risk.