Revenue increased by 12.5% in the first quarter, and the net interest rate declined slightly due to an increase in financial expenses. The company is a leading manufacturer of wool and cashmere spinning spindles. In the first quarter of 2024, the company's revenue increased 12.5% year-on-year to 1.1 billion yuan, and net profit to mother increased 6.6% to 100 million yuan. The gross margin for the first quarter increased slightly by 0.6 percentage points year over year to 18.6%. By business, sales in the wool spinning business grew rapidly, while unit prices fell slightly. Overall, double-digit growth and profit levels are expected; the wool business is expected to fall in gross margin due to falling wool prices; and the cashmere business is affected by increased depreciation and changes in order structure, and gross margin is falling. The sales, management, and R&D expenses rate was basically the same year on year, and the financial expenses ratio increased by 1.3 percentage points. As a result, the net interest rate to mother fell 0.6 percentage points year over year to 9.1%.
Operating indicators have remained positive, and capital expenditure has increased significantly. The number of inventory turnover days decreased by 17 days to 190 days year-on-year, and the number of receivable and payable turnover days remained at a healthy level. Q1 Capital expenditure increased 9.8 times year-on-year to 250 million yuan, which is expected to be mainly the construction of new production capacity. Net cash flow from operating activities in Q1 -290 million (-270 million yuan in 2023Q1). The balance ratio was 38.6%, down 3.0 percentage points from the end of 2023.
Outlook: The growth rate of worsted textile orders is impressive. The Q1 profit level increased, and we are optimistic about the release of domestic and foreign production capacity.
Since 2024, the company's wool spinning business order growth rate has been impressive. Production capacity is at full capacity, and some orders have been outsourced. In Q1, when wool prices are falling, the profit level of wool spinning has bucked the trend. This year, domestic and Vietnamese production capacity will be added one after another to accelerate growth.
Risk warning: weak overseas demand, repeated epidemics, falling short of expectations in developing new customers, systemic risks.
Investment advice: Steady operation, optimistic about the expansion of the company's production capacity, and continuous market share. The company's revenue grew by double digits in the first quarter. Despite adverse factors such as falling wool prices and increased depreciation in the cashmere business, gross margin still bucked the trend. Looking ahead to 2024, the company's worsted textile business is full of orders. As domestic and overseas production capacity is released one after another, subsequent growth will accelerate. Looking ahead to the medium to long term, in the context of optimizing the pattern of the wool spinning industry, the company actively lays out overseas production capacity expansion with excellent comprehensive competitiveness, develops new categories and customers, and has broad room for medium- to long-term growth. Maintaining the profit forecast, the company's net profit for 2024-2026 is estimated to be 4.7/55/ 630,000 yuan respectively, up 15.0%/17.7%/15.0% year-on-year, maintaining a target price of 8.4-9.0 yuan, corresponding to PE 13-14x in 2024, maintaining a “buy” rating.