Core views:

The company announced its 2023 annual report. The company's revenue in 2023 was 6.914 billion yuan, down 1.08% year on year, and net profit to mother was 504 million yuan, down 67.75% year on year. The company plans to pay a cash dividend of 3 yuan for every 10 shares, with a dividend rate of 5.24%.

Price by volume and by product. The company sold 21,600 tons of yarn in 2023, up 22.40% year on year, with an average price of 29,800 yuan/ton, down 17.67% year on year. The decline in average prices is mainly due to high inventories of overseas clothing brands, a decline in the company's share of high-priced color spinning revenue (48.65% in 2023, 56.68% in 2022), and large fluctuations in cotton prices. The company's revenue for color spinning in 2023 was 3.141 billion yuan, a year-on-year decrease of 13.50%, and embryo yarn revenue was 3.315 billion yuan, an increase of 19.44% over the previous year.

The company's gross margin declined, and the expense ratio declined slightly during the period. The company's gross profit margin in 2023 was 8.65%, a year-on-year decrease of 18.22 percentage points, mainly due to a decrease in average sales price. The company's expense ratio for the 2023 period was 9.06%, down 1.12 percentage points from the previous year. The main reason was the year-on-year reduction in sales commissions, which led to a decrease in sales expenses, and the year-on-year reduction in managers' remuneration led to a decrease in management expenses.

Vietnam's Blum achieved contrarian growth in revenue. Vietnam Blum's revenue in 2023 was 5.305 billion yuan, up 11.90% year on year, and realized net profit of 126 million yuan, down 81.66% year on year. By the end of 2023, Vietnam's Blum had a total production capacity of 1.26 million yarn spindles, accounting for about 70% of the company's total production capacity.

I am optimistic that the company's 24-year performance will rise at an inflection point. On the one hand, in 2024, overseas market demand is recovering, and the company's share of revenue from high-unit price, high-margin colored spinning is expected to increase. On the other hand, according to the annual report, the company continues to invest in Vietnam's Blum 390,000 spindle yarn production expansion project with its own capital.

Profit forecasting and investment advice. The company's 2024-2026 EPS is expected to be 0.37 yuan/share, 0.63 yuan/share, and 0.69 yuan/share, respectively. The judgment that the company has a reasonable value of 6.82 yuan/share remains unchanged, corresponding to the company's price-earnings ratio of 2024 about 18 times, maintaining the “buy” rating.

Risk warning. The risk of major customers stopping or reducing procurement; the risk of fluctuating raw material prices; the risk of rising labor costs; the risk of international operation and management.