Leading domestic PU synthetic leather enterprises, the production and operation trend is improving. The company was founded in 1994. Its main business is R&D, production, sales and service of ecologically functional polyurethane synthetic leather and composite materials. The annual production capacity in 2022 is 85 million meters, which is widely used in functional shoe materials, sofas and homes, electronic products, automotive interiors, sports equipment, engineering decoration, handbags, etc. In recent years, the company's performance has shown a trend of increasing year by year. In particular, the 2023Q3 performance has improved significantly. In 2022, it achieved revenue of 1,953 billion yuan, a year-on-year decrease of 4.55%; realized net profit of 145 million yuan, an increase of 9.65% over the previous year; in 2023Q3, the company's transformation and upgrading began to show results, achieving operating income of 557 million yuan, an increase of 7.5% over the previous year, an increase of 26.3% over the previous year; and realized net profit of 41 million yuan, an increase of 558.56% over the previous year, an increase of 173.33% over the previous year.
Ecological functions have been revolutionized into the mainstream of the industry, and emerging markets have contributed new momentum to growth. China is the world's manufacturing center for synthetic leather products, and production and sales have maintained a relatively stable trend in recent years. After research, we found that the synthetic leather industry, influenced by policy, process and other factors, has shown two fairly obvious development trends: (1) increased ecological environment+functional requirements — ecologically functional synthetic leather has become mainstream in the industry; (2) downstream application fields — expanding from traditional shoe materials and home furnishing fields to emerging fields with high gross profit and high technology such as automobiles and electronics. These changes in trends mean that enterprises that have taken the lead in mastering industry resources and technology in related fields will enjoy a certain first-mover advantage in the context of increased industry concentration in the future. Amway shares are a key target of both types of industry resources in the artificial leather and synthetic leather industry.
The release period for shoe materials and automobiles is approaching, and new products+new production capacity will help the company's performance grow. (1) Customers: The company continues to deepen the “2+4" market layout. In particular, there is obvious room for growth in the shoe materials and automobile fields. The future is expected to fully benefit from the release of orders from leading downstream brands. (1) Nike: The cooperation between the company and Nike's equipment department is stable, and the cooperation with the footwear department is still in the initial stage, and is expected to become a new driving force for the company's development; (2) BYD: BYD already has many models in the company. Given the company's late entry into the supplier system, there is still plenty of room for improvement in the future; (2) R&D: The company's R&D investment has been at a high level for many years, enjoying a first-mover advantage, and accounting for 20% of revenue in 2022; (3) Vietnam factory location Outstanding advantages The first two lines of the 12 million meter ecologically functional polyurethane artificial leather and synthetic leather project were completed and put into operation at the end of 2022. The company is actively promoting the verification of Amway Vietnam's Nike suppliers, and is also actively promoting the construction of the remaining 2 lines. It is planned to start production in the second half of 2024, which is expected to rise sharply in volume and price.
Investment suggestion: The company is a domestic PU synthetic leather enterprise. Demand for new eco-friendly products will increase in the future and the expansion and release of downstream customers. In addition, the Vietnamese factory is about to enter a period of capacity release, and the company's performance is expected to grow significantly in the future. We expect the company's net profit from 2023-2025 to be 0.84, 2.07, and 316 million yuan respectively, EPS of 0.39, 0.95, and 1.46 yuan respectively. The current price (December 13, 2023) corresponding to PE is 34x, 14x, and 9x, respectively, covering the first time, giving it a “recommended” rating.
Risk warning: the risk of fluctuations in raw material prices, the risk of increased gas supply and costs, the risk of production capacity not being fully utilized, etc.