In 2013, revenue fell 5% year on year, and net profit loss to mother was 376 million yuan, and Tianhong International Group announced its 2023 results. The company achieved operating income of RMB 22.725 billion, a year-on-year decrease of 4.5%. Net profit loss to mother was 376 million yuan, which turned into a year-on-year loss, and EPS was -0.41 yuan. Looking at the first half of the year, the company's revenue for the first half of 2023 fell 17.1% year on year, with a net profit loss of 747 million yuan and a year-on-year loss; in the second half of the year, the company's revenue increased 10.6% year on year, achieving net profit to mother of 371 million yuan, reversing losses year on year, and initial performance improvement in the second half of the year; net interest rates for the first half of the year were -6.92% and 3.11%, respectively.
In '23, the company's domestic sales and export revenue accounted for 69% and 31%, respectively. Affected by global economic and geopolitical conflicts, overseas demand is weak and there is pressure to remove inventories. Demand in the Chinese market has picked up, but competition in the domestic market has intensified due to insufficient export momentum. Under the combined influence, the company's revenue declined in '23. At the same time, combined with the effects of consumption downgrade and reduced capacity utilization, gross margin fell significantly and profitability was under pressure. In terms of profit margin, the company's gross margin fell 5.1 PCT to 6.4% year on year in '23, operating profit margin fell 0.8 PCT to 1.7% year on year, and net profit margin fell 2.3 PCT to -1.7% year on year.
Revenue from the main product, yarn, remained flat, volume and price fell. Revenue from other businesses other than non-woven fabrics declined by product: the company's main product was yarn, accounting for 77.2% of revenue in 23, accounting for a year-on-year increase of 3 PCT, and revenue fell 0.3% year on year. Revenue remained flat mainly due to the recovery in domestic market demand; woven and knitted fabrics accounted for 9.0% and 3.5%, respectively. Revenue fell 22.3% and 8.0% year-on-year, mainly due to the company's fabrics mainly in overseas markets, and overseas demand did not recover as expected in '23; among other products, blanks, denim clothing, trade, Non-woven fabrics accounted for 2.3%, 0.1%, 6.5%, and 0.3%, respectively. Revenue was -27.0%, -77.7%, -18.7%, and +12.8%, respectively.
In terms of volume price, the main product yarn volume increased and fell, sales increased 12.7% year on year to 740,000 tons, and unit price fell 11.5% year on year. In terms of other products, sales of blanks, woven fabrics, knitted fabrics, denim clothing, and non-woven fabrics were +9.9%, -22.9%, +2.8%, -76.5%, and -6.3%, respectively. The unit price was -33.8%, +0.4%, -10.5%, -5.0%, and +20.4%, respectively.
In terms of production capacity, by the end of '23, the company's main production facilities were about 4.18 million yarn spindles, of which there were about 2.43 million and 1.75 million yarn spindles in China and overseas (mainly located in Vietnam), the production capacity was basically the same as at the beginning of '23; in addition, the company had about 1,700 woven and knitting machines and corresponding dyeing and finishing equipment, a year-on-year decrease of about 19%. Mainly due to technological transformation and capacity rearrangement, the company disposed of some old equipment.
The decline in gross margin in '23 exceeded the cost rate. The increase in gross margin in the second half of the year has improved, and the gross profit margin decreased year on year: the company's gross margin fell 5.1 PCT to 6.4% year on year in '23, mainly due to overseas market demand falling short of expectations in '23, a trend of declining consumption, weak sales prices of the company's products, and the inability to fully release capacity utilization. Looking at the first half of the year, the gross margins of 23H1/H2 companies were -17.3 PCT and +8.4 PCT to 2.4% and 10.1%, respectively, and gross margins rebounded in the second half of the year.
By product, the gross margin of the main product, yarn, fell 4.9PCT to 5.7% year on year; the gross margin of all other products except knitted fabrics declined year on year, and the gross margin of knitted fabrics increased by 3.4 PCT to 8.7% year on year. The main reason is that in November 23, the company sold a loss-making Vietnamese factory to De Yongjia Group to contribute to cost control and strengthen vertical industry chain integration.
Expense rate: The cost rate decreased by 0.5PCT to 10.7% year over year, with sales, management, and finance expenses rates of 3.2% (-0.5PCT), 5.2% (-0.3PCT), and 2.3% (+0.3PCT), respectively.
Other financial indicators: 1) The book value of inventory at the end of 23 decreased by 30.9% year on year to 5.245 billion yuan, and the number of inventory turnover days was 109 days, a decrease of 17 days; 2) accounts receivable increased 15.3% year over year to 1,571 billion yuan at the end of the year, up 15.3% year on year, and the number of accounts receivable turnover days was 29 days, up 1 day year on year; 3) net operating cash flow increased 22.6% year over year to 1.986 billion yuan.
Performance was under pressure due to weak demand in '23, and profitability was expected to gradually improve in '23. The company's performance was pressured by weak demand in '23. The company carried out a series of structural restructurings in '23, divested some of its low-profit assets, and reintegrated some inefficient assets. It is expected that it will go to battle lightly in the future. At the same time, the company further strengthened the platform-based construction of functional business departments, reduced production and management costs, and improved management efficiency. In '24, the company will further transform and upgrade existing production capacity, improve production capacity efficiency, and increase research and development of green and environmentally friendly products.
The company plans to sell 760,000 tons of yarn, 92 million meters of woven fabric, and 12,000 tons of knitted fabric in 24 years (estimated year-on-year sales growth rates of +2.6%, and -22.1% in 24, respectively). We expect the company's profitability to gradually improve as demand recovers. Considering that there is still uncertainty about the recovery in downstream demand, we lowered the company's net profit from 24 to 25 (down 23%/13% from the previous profit forecast, respectively) and added a profit forecast for 26 years, corresponding to EPS of 0.83, 1.18, and 1.60 yuan, respectively, and PE for 24 and 25 was 5 times and 3 times, respectively, maintaining the “increase” rating.
Risk warning: Domestic and foreign demand is weak, orders fall short of expectations; cotton prices fluctuate greatly; the integration effect of midstream and downstream business falls short of expectations.