Introduction to this report:
Q4 The cotton socks and seamless business continues to pick up, and the performance recovery is better than expected; in 2024, as orders from downstream brands are being repaid, capacity utilization continues to increase, and the company's performance is expected to grow rapidly.
Key points of investment:
Investment advice: Considering that the company's profit recovery exceeded expectations, the 2024-2025 EPS forecast was raised to 0.89/1.01 yuan (previously 0.80/0.94 yuan), and the 2026 EPS forecast was added to 1.15 yuan. Considering the company's good performance flexibility, PE was given 14 times higher than the industry average in 2024, and the target price was raised to 12.46 yuan to maintain the “gain” rating.
Incident: 2023 revenue/net profit attributable to mothers/net profit deducted to mother were $2.281/2.70/262 million, respectively, -3.1% YoY/+3.3%/-0.1%; of these, 2023Q4 revenue/net profit to mother were 6.23/0.70/0.61 million yuan, respectively, +16.1% YoY. The performance exceeded expectations.
Downstream orders picked up, increased capacity utilization led to profit recovery, and the cotton socks business performed better than seamless. 2023Q1/Q2/Q3/Q4 revenue growth rates were -6.6%/-15.4%/-2.2%/+16.1%, respectively. Order demand gradually picked up, and Q4 ushered in an inflection point in revenue. By product: 1) Cotton socks: Revenue in 2023 was 1.59 billion yuan, +3% year-on-year. Orders from domestic brands such as Li Ning and Jiaonai gradually increased, and domestic sales revenue increased 52%; as production capacity utilization increased, cotton socks gross margin was +0.2 pct year on year. 2) Seamless: Revenue in 2023 was 630 million yuan, -15% year over year. Downstream demand has yet to recover, and gross margin is still under pressure in the short term. In terms of profit, the net interest rate for cotton socks increased by 2pct to 15% year on year in 2023, and the seamless net interest rate was about 4%, which is expected to gradually recover in 2024.
The 2024 order recovery trend is expected to continue, and the company's performance flexibility is expected to continue to unleash. Since the beginning of the year, as downstream brands have come to an end, order demand has continued to improve. We expect cotton socks to maintain steady growth, seamless capacity utilization is expected to pick up, and profit levels will gradually recover.
At the same time, the company is actively promoting the construction of new production capacity in Vietnam, and performance flexibility is expected to continue to be unleashed. In addition, the company actively pays dividends to shareholders. The announcement announced that it plans to distribute a cash dividend of 0.25 yuan per share. Considering that Q3 has already distributed a cash dividend of 0.25 yuan per share, the dividend ratio will reach 68% in 2023.
Risk warning: risk of raw material price fluctuations, risk of order demand falling short of expectations