Core views
The company's 23Q3 ushered in an inflection point in its performance, achieving net profit of 41 million yuan, +172% over the previous month; net profit after deducting non-return net profit of 38 million yuan, +320% month-on-month, gross profit margin of 22.3%, +2.5pct month-on-month, net interest rate 7.31, and +3.9pct month-on-month. Profitability improved and increased significantly. Mainly due to the company's increased product innovation and optimized product structure and customer structure, the automotive interior field is beginning to show results, and TPU continues to increase.
The company deepens its “2+4" layout. Functional shoe materials and sofa furniture are traditional dominant categories, accounting for 70-80% of revenue. The four emerging categories include automotive interiors, electronic products, sports equipment, and engineering decoration. Automotive interiors became suppliers such as BYD, etc., and the consumer electronics sector cooperated steadily with Apple, and supplied Huawei Mate and X series phones since 19.
occurrences
The company released its 2023 three-quarter report, and net profit increased significantly month-on-month
In the first three quarters of 2023, the company achieved revenue of 1.43 billion yuan, -5.0%; net profit of 42 million yuan, -77.4%; net profit of net income from net income of 42 million yuan, minus net profit of 29 million yuan, +45.9% year-on-year. Among them, 23Q3 achieved revenue of 560 million yuan, +7.50% year-on-month, +26.3%; realized net profit of 41 million yuan, +559% year-on-year, +172%; and realized net profit deducted from net profit of 38 million yuan, +1189% year-on-year, and +320% month-on-month.
Brief review
23Q3 performance ushered in an inflection point, and the release of high-value-added products such as automotive leather and TPU significantly improved the company's profitability
In 23Q3, the company's gross profit was 124 million yuan, +43.6% year-on-month, +42.6%; gross margin was 22.3%, +5.6pct, and +2.5pct month-on-month. The increase in gross margin was mainly due to the company's optimization of customer structure and product structure, increased the proportion of high-value-added products, increased customer development and cooperation with high-quality brands, and the average product price continued to rise. 23Q3 The company's TPU production reached a quarterly high, with TPU production in August reaching a new monthly high; in September 2023, the company's production of automotive interior products in that month reached a new monthly high since the company was founded. The company's core technology is strong, competitive advantages are evident, and the space is vast.
In 23Q3, the company's expenses rate for the period was 14.4%, -2.72pct month-on-month. Among them, the sales/management/R&D/financial expenses ratio was 4.1%/5.0%/5.2%/0.1%, respectively, and +0.6pct/-0.1pct/-1.5pct/-0.6pct month-on-month. Driven by this, the company's net interest rate rose sharply to 7.3% month-on-month, +3.9pct month-on-month. The main reason for the decrease in the cost rate for the period was the scale effect brought about by the increase in the company's capacity utilization rate and the increase in business volume.
The company specializes in polyurethane synthetic leather, deepens the “2+4" layout, and continuously optimizes the product structure and customer structure. The company's main business is the R&D, production, sales and service of ecologically functional polyurethane synthetic leather and composite materials. The company has built a hierarchical customer base in the “2+4" field. Functional shoe materials and sofa furniture are the two major advantageous categories, accounting for about 70-80% of total revenue; automotive interiors, electronic products, sports equipment, and engineering decoration are the four emerging categories, accounting for about 20-30% of total revenue. In the automotive interior category, in recent years, the company has successively become a supplier to well-known automobile brands such as Toyota, Great Wall, Xiaopeng, and BYD, and has received some targeted projects and mass production. In the electronic products category, the company has stable cooperation with Apple, actively expanding domestic and foreign brand customers such as Samsung, Google, vivo, OPPO, Xiaomi, and Beats, and increasing market share. The company has established a cooperative relationship with Huawei since 2016. Since 2019, the company's leather materials have been used in the Huawei Mate 30, Mate 40, Mate 50, Mate 60, X2, and X5 series phones.
In the functional footwear category, the company has cooperated well with domestic and foreign brand customers such as Puma, Asics, Decathlon, Anta, Express, Li Ning, Dadong, etc., and its internal share has increased; the cooperation with Nike is in line with market expectations, the situation is good, and the future momentum is strong; in the sofa home category, the company has deepened cooperation with brands such as Chivas, Gujia, and Eli; at the same time, many brand customers are expanding and actively cultivating, and growth is promising; in the sports equipment and engineering decoration categories, the company's market development and customer cooperation is stable; at the same time, the situation is stable;, the company actively contacts reserve customers such as Adi, UA, and NB, Cultivate and expand emerging fields such as outdoor, yachting, and medical care, obtain new growth opportunities and incremental space, and accumulate energy.
New production capacity has been put into operation one after another. The capacity structure and layout have been adjusted in line with product structure upgrades and optimization. Currently, the company has 2 production bases. One is Amway Industrial Park, which is located in the Hefei Economic Development Zone in Anhui, and the other is Amway Vietnam. Affected by factors such as the supply of raw materials, development and proofing, order structure, and the connection between processes before and after production, production capacity is flexible to a certain extent. The company's ecologically functional polyurethane synthetic leather technical upgrading and upgrading project is progressing in an orderly manner. After the technical upgrade of the project, the planned output of ecologically functional polyurethane synthetic leather for the four polyurethane synthetic leather production lines is 18 million meters/year, the planned construction period of the project is 1.5 years, and the planned production period is 1 year. Currently, one water-based, solventless polyurethane synthetic leather production line that has been upgraded and upgraded was put into operation in 2022, and an additional dry composite polyurethane synthetic leather production line was put into operation in the first half of 2023; the remaining 2 dry composite polyurethane synthetic leather production lines, one is being installed, and the other is being negotiated and procured. In recent years, with the transformation and upgrading of customer and product structures, the company has actively optimized and adjusted the production capacity structure and layout to accumulate energy for future development.
Profit forecasting and valuation:
It is estimated that the company's net profit from 2023-2025 will be 85, 2.07, and 316 million yuan, and the EPS will be 0.39, 0.96, and 1.46 yuan, maintaining the “buy” rating.
Risk warning:
The macroeconomic growth rate continues to decline (market demand in the company's industry is closely related to residents' consumer life. The sales price and sales volume of the company's main products showed certain fluctuations due to changes in the macroeconomic development situation and the relationship between supply and demand in the market. With cyclical fluctuations in the macroeconomy at home and abroad, demand and prices for the company's products in the downstream industry may decline, which will adversely affect the company's future business development and business performance); raw material prices or energy prices rise sharply (the company's raw materials are MDI, BDO, adipic acid, etc., and procurement of natural gas from abroad. If raw materials and energy surges cause fluctuations in the company's product costs, and product sales prices do not fluctuate simultaneously, the company's performance will fluctuate); the company's new product volume falls short of expectations (the company has actively developed the automobile market in the past 2 years, and the impact on downstream demand will fall short of expectations. (Growth rate of the company's net profit); Risk of overdue payment of trust products: According to the company announcement, the company has purchased the Zhongrong-Yuanrong No. 1 pooled fund trust plan with a purchase amount of 20 million yuan. As of November 9, it has not yet received the principal and investment income of these trust products. Since there is still uncertainty about the recovery of investment funds for the above trust products, and based on the nature of non-capital protected wealth management products, there are liquidity and security risks, and there is a risk that all principal and interest cannot be paid. If not all principal and interest can be paid, it will adversely affect the company's profits, and the extent of the impact is uncertain. The details are subject to annual audit results.