PU synthetic leather faucet, 23Q3 sales are on the rise. The company mainly develops, produces and sells ecologically functional polyurethane synthetic leather and composite materials. The overall market share of the domestic artificial leather synthetic leather market is about 5%, ranking first in the country, with a share of more than 20% in the middle and high-end market segments. In 2023Q1-Q3, the sales volume of the company's main leather products fell 2.09% year on year, and sales revenue fell 1.32% year on year. Although sales volume and revenue still declined year on year, the decline was further narrower than in half a year. 23Q3's main leather product sales volume was +12.16% year on year, revenue +10.19% year on year, and overall sales showed an upward trend.
Functional shoe materials have been removed from storage, sofa furniture has bottomed out and rebounded, and the TPU business has been rising steadily, and there is room for improvement. Functional shoe materials and sofa furniture are the company's two major competitive categories, accounting for about 80% of total revenue. 1) Since 2023, domestic and foreign sports brands have continued to remove inventory, and functional shoe materials have declined year-on-year, but the company's internal share of domestic and foreign sports and leisure brand customers has increased, newly developed TPU products have gradually been released, and the overall trend of the functional shoe material category has improved; 2) Sofa homes have bottomed out and recovered for the better, with a certain increase over the previous year. 3) Beginning with 2022H2, the company developed and prototyped TPU with domestic and foreign sports brands such as Anta and Xtrep, and gradually mass-produced in June 2023. It is in a period of steady rise. There is still room for TPU's internal share to increase; cooperation with Nike, Puma, 361 Degrees, and Zhongqiao is in the beginning stages of TPU product cooperation.
The automotive interior is growing rapidly, and the electronics business is improving steadily. Automotive interiors, electronic products, sports equipment, and engineering decoration are the four emerging categories, which currently account for about 20% of total revenue. 1) The company is a supplier of well-known automobile brands such as Toyota, Great Wall, Xiaopeng, and BYD, etc., and has received some targeted projects and mass production; it is actively contacting and contacting more automobile brands, striving to expand targeted projects, and seek more orders. It is expected that in 2024 and some time to come, the automotive interior category will maintain a good growth rate, and the share of revenue will increase further. 2) The company's cooperation with Apple is stable, and Samsung has grown. It is actively connecting and expanding related brand companies such as Beats, Google, OPPO, and VIVO to increase market share. We expect to maintain a steady growth and positive trend in 2024.
Amway Vietnam has strong momentum in the future. The company invested in the construction of Amway's Vietnamese subsidiaries to adapt to the trend of capacity transfer between international sports and leisure brands such as Nike, Adidas, and Puma, as well as domestic and foreign sofa home brands such as Ellie, Chivas, Gujia, Zhongyuan, Yongyi, and Henglin. Amway Vietnam is currently in the early stages of production. Depreciation, employee remuneration, market development investment, etc. are large at this stage, and brand customers conduct factory inspections and test orders for Amway Vietnam. There is a certain cycle. Currently, the operating rate is low, production and sales have not reached a break-even point, so it is expected that future momentum will be strong.
Profit forecast. We expect the company's net profit for the year 23-25 to be 0.83, 1.60, and 253 million yuan respectively. Combined with comparable company valuations, we give 25 times PE in 2024, and the corresponding target price is 18.47 yuan (the previous target price was 21.16 yuan, based on 23 times PE in 2022, -13%), maintaining the “superior to market” rating.
Risk warning: Changes in the macroeconomic environment; downstream market demand falls short of expectations.