Incidents:
The company's revenue for the full year of 2023 fell 1.08% year on year to 6.914 billion yuan, and net profit to mother decreased 67.75% year on year to 504 million yuan; single Q4 revenue increased 44.38% year on year to 1,822 million yuan, and net profit to mother - 49 million yuan.
Comment:
The price-for-volume strategy was successfully implemented throughout the year. In the context of inventory removal from downstream brand customers, the company adopted price-for-volume measures, and annual yarn sales increased 22.4% to 21,600 tons. It led to a slight decrease in annual revenue of 1.08% to 6.914 billion yuan. On a quarterly basis, Q3/Q4 achieved a positive revenue growth rate, and Q4 revenue also increased by 44.38% to 1,822 billion yuan. By product, revenue from color spinning and embossed yarn was -13.5%/+19.44% year-on-year to 31.41/3.15 billion yuan, respectively.
Vietnam's new production capacity is expanding smoothly. By the end of 2023, the company's total production capacity in Vietnam had increased by 80,000 ingots to 1.26 million ingots over the same period last year, and the Vietnam production capacity expansion project progressed smoothly. There is still a production capacity reserve of about 240,000 tablets in the future to fully meet the demand for 2024 order improvement.
Profitability is under pressure in 2023. The company's gross margin for the full year of 2023 fell 18.22pct to 8.65% year-on-year, mainly due to the high price of the company's reserve raw materials, the decline in capacity utilization in the first half of the year, and the decline in product prices. Among them, the gross margin of colored spinning and blended yarn decreased by 14.33pct/22.09pct year-on-year to 12.82%/2.41%, respectively. On the cost side, the annual sales/management expense ratio decreased by 0.11pct/0.82pct year-on-year to 0.59%/4.79%, respectively, and the results of cost control were evident. Combined, the company's annual net interest rate fell 15.07pct year on year to 7.29%. Profitability is expected to recover as the company consumes high-priced raw materials and implements measures such as raising product prices and reducing discounts.
Maintain healthy operating conditions. At the end of 2023, the company's inventory fell 13.55% to 4.708 billion yuan, and the number of inventory turnover days fell 47 days to 287 days. The turnaround days for accounts receivable and payable ranged from -1/-9 days to 28/15 days. At the end of the period, the company had monetary capital of 2.65 billion yuan and plenty of cash.
The company promotes high cash dividends. The company plans to decide to pay a cash dividend of 3 yuan for every 10 shares in 2023, with a total cash dividend of 447 million yuan, and a cash dividend ratio of 88.65%. As a high-dividend target, the company attaches great importance to shareholder returns.
Investment advice: As a leading company in the field of color spinning, we are optimistic that it will achieve a sharp increase in volume and price in the context of downstream order restoration in 2024, and profitability is expected to recover. We expect the company to achieve a year-on-year increase of 20.07%/24%/17.91% of net profit to 6.05/7.51/885 billion yuan in 2024-2026. The current price is 5.66 yuan, corresponding PE is 14/11/10 times. Covered for the first time, giving it a “buy” rating.
Risk warning: international macroeconomic fluctuations; fluctuations in raw material prices; customer inventory removal results fall short of expectations; capacity construction falls short of expectations; profit forecasts and valuations fall short of expectations, etc.