Core views:
The company announced its 2023 annual report. According to the company's annual report, in 2023, the company achieved revenue of 2,511 billion yuan, +13.73% year-on-year, net profit of 104 million yuan, and net profit without return to mother, -29.79%. The increase in revenue was mainly due to an 11.29% year-on-year increase in the company's colored yarn sales volume. The decline in profit was mainly due to the fact that the adjustment of the company's processing fee prices had not resumed since the second half of 2022. Second, the new production capacity was still climbing, depreciation and labor amortization. Costs have increased significantly. Among them, Q1/Q2/Q3/Q4 revenue was -0.24%/+11.54%/+22.61%/+18.42%, respectively, and net profit to mother was -13.08%/-78.10%/+39.69%/+42.50%, respectively.
Profits remained low due to sluggish demand and depreciation, and overall expenses increased during the period. In 2023, the company's gross sales margin/net margin/net net margin was 11.49%/4.16%/3.33%, -0.30/-3.22/ -0.26pct; the sales/management/R&D/finance expenses ratio was 0.56%/2.27%/3.61%/0.20%, +0.03/+0.31/+0.38/0.66pct year over year. 23Q4 sales gross margin/net margin/net net margin was 11.33%/4.68%/3.53%, +3.73/+0.79/+0.46pct year-on-year.
The company's new production capacity will be released centrally in 2024, and the annual performance is expected to grow rapidly. First, according to Shanghai Securities e-Interaction, the first/second workshop of the 60,000-ton tube yarn project in Jingzhou, Hubei was put into operation in August/October 2023. The third workshop has already been commissioned, and the company's production capacity will be greatly increased in 2024. Second, cotton prices are gradually stabilizing, which is conducive to intelligent spinning projects to achieve profits as soon as possible; moreover, cotton hedging effectively reduces fluctuations in raw material prices on earnings. Third, the company's hosiery market share is stable, and the new product technical team continues to work hard.
Profit forecasting and investment advice. EPS is expected to be 1.37 yuan/share, 1.49 yuan/share, and 1.64 yuan/share in 2024-2026, respectively. Taking into account factors such as the company's position in the industry, competitive advantage, profitability, and performance growth, the company was given a 2024 13XPE valuation, corresponding to a reasonable value of 17.77 yuan/share, maintaining a “buy” rating with reference to comparable companies.
Risk warning. Risk of fluctuations in raw material prices, risk of macroeconomic fluctuations, risk of insufficient demand.