2024Q1 performance is expected to increase year over year. PU synthetic leather leaders can be expected in the future and maintain a “buy” rating

The company released a performance forecast for the first quarter of 2024. It is expected to achieve net profit of 3800-45 million yuan in 2024Q1, an increase of 370.79%-420.68% over the previous year, an increase of 30.17%-54.15% over the previous year, and an estimated net profit of 35-42 million yuan without return to mother, an increase of 298.73%-338.47% year-on-year, and a year-on-year decrease of 22.31%-6.77%. Although the company's Q1 business activities were affected by the Spring Festival holiday, its performance continued to grow steadily. We believe that the company's Q1 performance is basically in line with expectations, so we maintain the company's profit forecast for 2024-2026. We expect net profit to be 1.86, 2.60, and 329 million yuan, respectively, and EPS of 0.86, 1.20, and 1.52 yuan, respectively. The current stock price corresponds to PE 16.3, 11.7, and 9.3 times, respectively. We are optimistic that the company, as a leader in the domestic PU leather industry, is expected to fully benefit from the recovery in demand for shoe materials, the continued increase in demand for new TPU products and new energy vehicles, and maintain a “buy” rating in the future.

The product and customer structure continues to be optimized. According to the company's announcement, the volume and price of 2024Q1's main products have risen sharply. According to the company's announcement, the main reason for the year-on-year increase in 2024Q1's performance is due to deepening cooperation between the company and brand customers, the strategic results of major customers are beginning to show, and the customer structure and product structure are optimized. In terms of volume and price, according to the company's announcement, in 2024Q1, sales of the company's main products increased 16.73% year on year, revenue increased 25.16% year on year, unit price increased 7.26% year on year, and volume and price of main products rose sharply. In terms of gross margin, the gross margin of sales of 2024Q1's main products reached 28.06%, up 10.46 pcts year on year and up about 4.99 pcts month over month. The main reason was that large companies had strong innovation ability, optimized product and customer structures, and increased share of products with high unit prices, high gross profit, and high added value.

With the help of multiple factors, the company's performance is expected to continue to increase

According to the company's announcement, emerging demand for automotive interiors, electronic products, sports equipment, and engineering decoration is currently developing well, and such demands are all high value-added fields, which are expected to contribute significant profit increases to the company in the future.

At the same time, the influence of new TPU products on high-end sports brands at home and abroad is increasing, and the company's shipments may continue to grow in the future. Furthermore, with the gradual increase in customer orders and the gradual release of production capacity, Amway Vietnam's sales volume in the second half of 2023 increased by about 316% compared to the first half of the year, and its overall profit is expected to improve in 2024. Finally, for the shoe materials sector, which is one of the company's main traditional needs, demand may also experience marginal improvement as domestic and foreign downstream customers continue to leave the warehouse, which in turn will further drive the growth in demand for PU leather.

Risk warning: Downstream demand falls short of expectations, large fluctuations in raw material prices, large fluctuations in energy costs, etc.