In 2023, the company's revenue was -10% YoY /Performance was basically the same year over year. 1) The company announced its 2023 results: main revenue in 2023 -10.1% year-on-year to 24.97 billion yuan, and net profit to mother -0.1% year-on-year to 4.56 billion yuan. Among them, government grants of 250 million yuan (170 million yuan in 2022), exchange income of 150 million yuan (1.11 billion yuan in 2022), and interest income of 780 million yuan (280 million yuan in 2022). After excluding the effects of the above three factors, we judge that net profit has increased steadily over the same period last year. 2) Volume-price split: Based on changes in the company's product and exchange rate trends, we estimate that the single-digit per dollar unit price increase will increase slightly during the reduction in double-digits/RMB sales average unit price increase in 2023. 3) Profit quality: Gross margin +2.2 pct to 24.3% year on year in 2023 (of which H1 and H2 gross margins are 22.4% and 25.8% respectively. Along with improved capacity utilization, the company's gross margin has increased month-on-month); sales/management expense ratios were -0.1/+0.5pct to 0.7%/7.5%, respectively, and net margin +1.8pct to 18.3% yoy. 4) Looking at H2 alone, 2023H2's main revenue was -5.5% YoY to 13.41 billion yuan, and net profit to mother +10.7% YoY to 2.43 billion yuan.
Orders from core customers are expected to grow steadily in 2024, and the trend of improvement is clear. As downstream brands' inventory removal progresses during 2023, company orders gradually improve month-on-month. We judge that the 2024 trend is expected to continue.
1) Looking at spin-off customers: In 2023, the company's sales to the top four customers were 77.0/60.0/36.9/2.49 billion yuan, respectively, -11%/+3%/-24%/-28% year-on-year, accounting for 31%/24%/15%/10%, respectively; other customers achieved sales of 5.09 billion yuan, +2% year-on-year. We judged that orders for the company's core customer brands all grew steadily year over year in 2024. 2) Looking at the segmented categories: in 2023, sales of sports/leisure/underwear/other categories were 180.3/56.7/1.07 billion yuan, respectively, -14%/-1%/+30%/-42% year-on-year, accounting for 72%/23%/4%/1% respectively. 2) Looking at spin-off regions: In 2023, the company's sales to domestic/Europe/US/Japan/other regions were 71.2/50.3/38.8/36.8/5.26 billion yuan, respectively, +1%/-19%/-20%/-6%/-8% year-on-year, accounting for 29%/20%/16%/15%/21% respectively.
At present, the capacity utilization rate has performed well, and the advantages of the industrial chain have continued to be strengthened over a long period of time. 1) Based on the recent situation of the same company and industry situation, we judge that the current capacity utilization rate of the company's domestic and overseas factories is basically saturated, and gross margin is expected to gradually increase sequentially in 2024. 2) Medium- and long-term companies continue to promote the construction of independent, integrated and international industrial chains to strengthen their core competitiveness. Currently, the company has more than 90,000 employees and produces more than 200,000 tons of knitted fabrics and about 500 million pieces of knitted garments per year. Currently, it is supplementing woven fabric products and further improving the category layout. ① Domestic: Strengthen digital construction, with R&D, efficiency and speed as core competitive advantages. ② Additional overseas production capacity is expected to be released smoothly in the future. At the same time, along with the improvement of supporting facilities and quick-reaction capabilities, overseas contributed about 53% of ready-to-wear output in 2023 (+7 pct compared to the previous year), and it is expected that it will continue to increase in the future.
It will be gradually repaired within 2023, and healthy growth is expected in 2024. We estimate a steady increase in the company's orders and shipments since 2024Q1. Looking ahead to the full year of 2024, we judge that the company's revenue is expected to grow steadily in double digits for the whole year, gross margin is expected to gradually recover during the year, and main business profit (excluding the influence of factors such as exchange rates) is expected to grow rapidly.
Investment advice. The company is the world's largest vertically integrated garment manufacturer. Currently, there is a clear trend of order improvement, long-term capacity expansion, efficiency improvement, and competitiveness. We comprehensively expect the company's net profit to be 56.05/64.31/7.256 billion yuan from 2024 to 2026, up 23%/15%/13% year over year, respectively. The current price corresponds to 2024 PE 16 times, maintaining the “buy” rating.
Risk warning: risk of downstream demand fluctuations; risk of capacity expansion falling short of expectations; risk of fluctuations in orders from large customers; risk of foreign exchange fluctuations.