The company mainly deals in the viscose filament and spandex business. Leading viscose filament companies have strong market control, and the industry's new production capacity is strictly limited; Guochao style has driven an increase in domestic demand for viscose filament, and industry sentiment continues to rise; spandex prices are at the bottom of recent years, and there are marginal expectations for an improvement in the supply and demand relationship.
Leading viscose filament companies have strong market control, and the industry's new production capacity is strictly limited. China is the world's largest producer of viscose filament. In 2022, China's production capacity reached 75% of the world. After continuous reshuffle in previous years, industry concentration increased dramatically. By the end of 2023, China's total viscose filament production capacity was about 230,000 tons/year, of which Xinxiang chemical fiber production capacity was 90,000 tons/year. It is the world's largest viscose filament manufacturer, with strong market control and international influence. After the Russian-Ukrainian conflict broke out, European viscose filament companies faced high energy cost pressure and their competitiveness declined, and domestic viscose filament companies are expected to further seize global market share. Beginning in 2017, it was strictly prohibited to build new viscose filament projects domestically. The requirements for renovation and expansion projects are high, and the new production capacity of the industry is strictly limited.
Domestic demand for viscose filaments has increased due to the trend of Guochao, and the industry's prosperity continues to rise. In recent years, with the revival of Guochao culture and traditional culture, Hanfu has become more and more popular among young people. The size of the domestic Hanfu market has continued to rise, reaching 14.47 billion yuan in 2023, an increase of 15.4% over the previous year, and a compound annual growth of 33.8% since 2019. Hanfu sales have risen sharply since this year. Viscose filament is the first choice for making medium and high-end horse mask skirts, and the rapid increase in demand for Hanfu will also greatly boost demand in the domestic viscose filament market. Currently, the market price of viscose filament is 44,000 yuan/ton. Recently, the price has continued to rise. As the relationship between supply and demand in the industry continues to tighten, there is still room for further price increases in the future.
The price of spandex is at the bottom of recent years, and there are expectations for a marginal improvement in the supply and demand relationship. In recent years, leading domestic spandex companies have continued to expand production. Some small and medium-sized enterprises have withdrawn, and industry concentration has increased markedly. Currently, the top five domestic spandex companies account for 78.6% of production capacity. The spandex industry plans to build a lot of new production capacity, but due to the sharp drop in spandex prices in recent years, there is great uncertainty about the actual commissioning, and it is expected that the industry's new effective production capacity will slow down in 2024. The average price of the domestic spandex market in the first quarter of 2024 was 29,800 yuan/ton, which was basically at the bottom level in recent years, but benefiting from the drop in raw material prices, the spandex price spread increased by about 906 yuan/ton in the first quarter, and profitability improved. In 2024, the world will host several major sporting events, which may drive the growth in demand for sportswear. There is an expectation that the supply and demand relationship of spandex will improve marginally.
An “increase in holdings” investment rating: The company's net profit due to mother in 2024-2026 is expected to be 301 million yuan, 527 million yuan, and 658 million yuan respectively, EPS is 0.21, 0.36, and 0.45 yuan, respectively. The current stock price corresponds to PE 20.7, 11.9, and 9.5 times, respectively. Covered for the first time, a “gain” rating was given.
Risk warning: falling product prices, fluctuating raw material prices, downstream market demand falling short of expectations.