Incident Overview

In 2023, the company's revenue/net profit attributable to mothers/net profit after deduction of non-attributable net profit/operating cash flow were 20.00/0.71/0.74 billion yuan, respectively, up 2.43%/-51.03%/507.44%/41.09% year-on-year. The net profit growth rate lower than revenue was mainly due to net income from land and storage in the old factory area of Jinzhai Road of $159 million in '22, loss of fair value change in trust products of $0.2 billion in '23, reduction in government subsidies ($0.21/018 million), and Vietnam's loss of $21 million (loss of $0.05 billion in '22). Excluding the above effects, net profit was $93 million, up 406% year on year; net operating cash flow was higher than net profit from asset disposal, mainly due to reduced income from asset disposal, depreciation, and increased payables.

2023Q4's revenue/ net profit attributable to mothers/ net profit after deducting non-return to mother were 5.69/0.29/45 million yuan respectively, up 27.41%/174.08%/218.37% year-on-year, with a net non-net interest rate of 8%, continuing the improvement trend since Q3.

Analytical judgment:

Revenue growth was mainly due to volume growth, and the revenue growth rate corrected in the second half of the year. (1) Synthetic leather revenue in '23 was 1,966 billion yuan, up 5.75% year on year. Looking at the split price, sales volume/unit price increased 4.87%/0.84% year on year, with sales volume/revenue/unit price increasing 24.78%/29.56%/3.82% year on year respectively in the second half of the year. (2) By product, ecological functional leather/ordinary synthetic leather/other revenue was 1,882/1.14/34 billion yuan respectively, up 6.96%/-10.72%/-63.43% year-on-year. (3) By region, domestic/foreign revenue was 1,220/781 billion yuan respectively, up 1.08%/4.63% year on year. The increase in foreign revenue was mainly due to the commissioning and commissioning of Amway Vietnam's two production lines. The company actively promoted localized management, developed markets, and built up energy for overseas layout. (4) By sales model, direct sales/distribution revenue was 1,751/249 million yuan respectively, up 1.84%/4.62% year-on-year. (5) On a quarterly basis, the Q1-4 revenue growth rate was -10%/-13%/8%/27%, which gradually improved in the second half of the year. We analyzed that the increase in Q4 growth mainly came from the end of inventory of sports shoes and improved orders.

Gross margin increased sharply in the second half of the year, and the decline in net profit was mainly affected by the decline in asset disposal income. (1) The company's gross margin in '23 was 20.86%, an increase of 4.99PCT over the previous year. Mainly due to the company's product structure optimization, the proportion of products with high unit price, high gross profit, and high added value increased. The gross margin of sales of main products reached 21.01%, up 4.55PCT year on year. The gross margin of main product sales in the second half of the year reached 22.89%, up 4.26PCT month-on-month and 8.17PCT. By product, the gross margin of ecological functional leather/ordinary synthetic leather in '23 was 21.51%/12.76%, respectively, up 4.51/3.57PCT year-on-year. (2) Net interest rate/deducted non-net interest rate in '23 was 3.54%/3.7%, down 3.87/-4.63PCT year on year. In terms of cost ratios, the 23-year sales/management/R&D/finance expense ratios were 4.32%/4.33%/0.56%/6.31%, respectively, up 0.64/-1.01/0.05/-0.36PCT year-on-year. The share of asset disposal asset income fell 9.52 PCT to 0.09%. Excluding the impact of asset disposal income, net interest rate to mother increased by 5.65 PCT year on year; fair value change loss/revenue increased by 1 PCT to 1% year on year; the share of other income decreased by 0.21 PCT year on year; profit and loss/income of minority shareholders decreased by 0.74 PCT year on year. (2) The gross margin of the 23Q4 company was 23.07%, up 11.25PCT year on year, and the net profit margin to mother was 4.93%, up 14.03PCT year on year; the share of the four major expenses decreased by 6.85PCT to 13.69%; the share of other income and net income from investments decreased by 0.37PCT to 0.29%; the share of impairment losses increased by 2.6PCT; loss from changes in fair value increased by 3.5PC year on year; the share of non-operating net income decreased by 0.54 PCT; income tax/revenue increased by 2.39 PCT.

The company's inventory declined year over year. The company's inventory in '23 was 326 million yuan, a year-on-year decrease of 14.05%, of which raw materials/in-products/inventory goods/other inventory accounted for 45%/18%/19%/18%, up -1/-2/0/3PCT year on year. The number of inventory turnover days was 80 days, a decrease of 13 days compared to the previous year. The company's accounts receivable were 271 million yuan, up 29.53% year on year. The average number of accounts receivable turnover days was 43 days, an increase of 4 days year on year. The company's accounts payable was 480 million yuan, up 13.50% year on year. The average number of accounts payable turnover days was 103 days, an increase of 15 days year on year.

Investment advice

We believe that (1) in the short term, sports shoe materials are expected to usher in order recovery in 24 years, and the company is expected to contribute more by expanding new customers and increasing the share of old customers; the automotive sector is an important new momentum and incremental space for the company in the future, and is expected to rapidly expand new customers and new projects with the geographical advantages of Anhui; (2) Amway Vietnam has entered the NIKE global supply system and is expected to obtain order increases in 24 years, while actively promoting the construction of the remaining 2 production lines. It is expected to be put into operation in the second half of this year, which is expected to lead to a further increase in production capacity; (3) the company is actively optimizing the production capacity structure and planning In 24 years, technical reform upgraded 2 wet production lines, and added 2 new dry composite production lines to increase water-based and solventless production capacity. In the long run, it is expected to improve the product structure and bring about price increases.

Maintaining the 24-25 revenue forecast of $2,40/2,933 million yuan; maintaining the 24-25 net profit forecast of $2.01/264 million yuan, and adding a net profit forecast of $334 million for 24-26 years, corresponding to EPS of 0.93/1.22/1.54 yuan for 24-26, respectively. The closing price of 13.36 yuan on March 29, 2024 corresponds to PE of 14/11/9X, and is still optimistic about the improvement in customer structure and profitability brought about by water-based solvent-free products in the medium to long term , maintaining a “buy” rating.

Risk warning

Customer expansion falls short of expectations; production capacity expansion falls short of expectations; risk of financial investment shareholders' holdings reduction; systemic risk.