Incident Overview

The company released the 24Q1 performance forecast. The net profit/deducted non-net profit for 24Q1 is expected to be 0.38-0.45/0.35—0.42 billion yuan, up 370.79% — 420.68%/298.73% — 338.47% year-on-year, and the performance exceeds market expectations. In 24Q1, government subsidies and tax benefits included profit and loss were about $6.4822 million. The various types of government subsidy funds received in the current period decreased by 51.6% year-on-year to $2.13,200. 24Q1 continued the year-on-year improvement trend in 23Q3 and Q4, that is, the 23Q3/23Q4/24Q1 deducted non-net interest rate was 6.8%/7.9%/6.4-7.7%, and it was the best Q1 performance in history. The off-season was not weak, and the deducted non-net interest rate reached a record high. We analyzed that on the one hand, it benefited from high growth in automotive interiors, and on the other hand, the sports industry began to enter the inventory replenishment cycle.

Analytical judgment:

The sharp rise in volume and price led to an increase in revenue. The company has sufficient orders, strong production and sales, continued the good trend since 2023Q3-Q4, and achieved a good start. 24Q1 sales volume of main products increased 16.73% year on year, revenue increased 25.16% year on year (23Q3/Q4 revenue increased 8%/27% year on year), unit price increased 7.26% year on year, and volume and price of main products rose sharply. Our analysis is mainly due to downstream sports brands starting to remove inventory in 22Q3, 23Q4 is coming to an end, and is now entering the inventory replenishment phase.

The 24Q1 off-season was not easy, and deducted non-net interest rates reached a record high. 24Q1 gross margin increased 10.46PCT to 28.06% year-on-year, and net profit margin/net profit margin increased by about 10.2-11.5/10.5-11.8PCT to 7.0%-8.3%/6.4%-7.7%, after deducting non-net interest rates that exceeded the 21Q1 (6.3%) level and reached a record high. We analyzed that the sharp increase in profitability was mainly due to customer structure optimization, and the share of products with high unit price, high gross profit, and high added value added value increased.

Investment advice

We analyzed that by category, (1) sports shoe materials are expected to experience rapid growth in 24 years. Amway Vietnam has entered the NIKE global supply system, and Vietnam is expected to reverse losses this year; (2) automotive interiors are expected to double, benefiting from major customer strategies and new customer expansion; (3) market concerns about the impact of the production cycle on the sofa business, but we analyzed that overseas real estate is stabilizing, and many of the company's customers still have room to increase their share. (4) Consumer electronics is expected to stabilize at the bottom, while electronics will maintain steady growth.

Maintain the 24-26 revenue forecast of 24.60/29.33/3.438 billion yuan; maintain the 24-26 net profit forecast of 2.01/2.64 billion yuan, corresponding to 24-26 EPS of 0.93/1.22/1.54 yuan, respectively; the closing price of 14.04 yuan on April 15, 2024 corresponds to a PE of 15/12/9X. We are optimistic about the profit elasticity brought about by the company's customers and product improvements in the long term, and maintain 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.