Main points of investment

Company profile: domestic ultra-fine composite fiber fabric leader. The company is deeply engaged in research and development in the field of ultra-fine fiber, including ultra-fine fiber fabrics, finished products and dust-free clean products. Finished products (mainly sports towels) / imitation leather fabrics / functional fabrics / dust-free clean products / other businesses (grey cloth and processing fees sold to customers) account for 50% of the revenue in 22 years, respectively. The company is mainly for export, accounting for 52% of the revenue in 22 years, and has established close cooperation with Decathlon, ZARA, Centra, etc., of which Decathlon is the largest customer, accounting for more than 50% of the revenue. In recent years, the company continues to expand new areas, product categories gradually from clothing home textile into the mobile phone, automobile supply chain system.

Ultra-fine fiber industry: superior performance, downstream applications continue to expand. Ultra-fine fiber originated in Europe and Japan in the middle of the last century, with high technological maturity, its fineness is 1max 200 of human hair and 1max 20 of ordinary chemical fiber, which is mainly composed of nylon, nylon and so on. it has the advantages of water absorption and quick drying, strong air permeability and not easy to deform. it is mainly used in bath towels, bathrobes and sofa covers in the field of clothing and home textile, and the demand is relatively stable. With the further excavation of material properties, benefiting from its outstanding skin feel, air permeability, wear resistance and dust adsorption ability, the field of application has gradually expanded to industrial fields such as automobile imitation leather, electronic packaging materials, dust-free cleaning and so on. In terms of competition pattern, Japan, South Korea and Europe lead in technology, the domestic market is introduced relatively late, the number of enterprises is large, and the layout is relatively low-end.

Performance overview: fluctuated by the epidemic, showing a weak recovery over the past 23 years. From 2015 to 2019, the demand for ultra-fine fiber products was good, and the sales growth led to 5% CAGR of revenue and a relatively steady growth rate, but the rise in oil prices led to a decline in profitability and homecoming net profit. Disturbed by the epidemic from 2020 to 2022, the company's performance fluctuated greatly, among which 21 years benefited from the relaxation of overseas epidemic control and the replenishment of the brand supply chain, and the performance increased significantly. 23 years ago, the demand of the benefited domestic market showed a weak recovery, and 23H1 revenue / net profit was + 13% and 2.4% respectively compared with the same period last year. The company's profitability is mainly affected by crude oil prices, customer bargaining, product structure and other aspects. In recent years, gross profit margin has gradually declined, 23H1 net profit rate has rebounded.

The company's highlights: deep technology accumulation, high-quality customer resources, the development of new industrial growth points. 1) strong technology: the production process of ultra-fine fiber fabric is complicated and technically difficult, and each link has a significant impact on the quality of the finished products. The company's technology leads the domestic high-end ultra-fine fiber industry, with the whole industry chain process from weaving to finished product processing. More than 20 years of self-research core technology and technical management system have created profound technical advantages. 2) customer excellence: international well-known customers have strict qualification standards, so fabric and finished product suppliers have high barriers to entry and high customer loyalty after certification. Based on the advantages of core technology and technology, the company has established a stable cooperative relationship with Decathlon and others, and the company is also the largest supplier of Decathlon ultra-fine fiber sports towels in the world, accounting for nearly 90%. 3) Product diversification: through original development, the company has gradually expanded the ultra-fine fiber fabric to the industrial field, such as clean wiping cloth, electronic products, automobile imitation leather interior decoration containing soaked fabric, and so on. It is expected to contribute to a new growth point of performance.

Profit forecast and investment rating: as the leader of ultra-fine fiber fabric, the company ploughs the application field of ultra-fine fiber, the demand of traditional clothing application is relatively stable, and the products used in the industrial field are expected to grow rapidly for a long time.

We estimate that the company's 2023-2025 net return profit will be 0.41 billion yuan 0.46 million yuan, + 12% plus 12% plus 13% plus 12% compared with the same period last year, and the corresponding PE will be as high as 54-48-43, with a high valuation and a "neutral" rating for the first time.

Risk tips: major customer loss risk, weak demand, customer expansion is not as expected, raw material price fluctuations and so on.