Incident Overview
The company's revenue/net profit attributable to mothers/net profit after deducting non-attributable net profit/operating cash flow in 2024Q1 was 11.00/0.96/0.93/-291 million yuan, up 12.48%/6.59%/6.37%/-8.18% year-on-year, respectively. The lower profit growth rate than the revenue growth rate was mainly affected by the 1.3 PCT increase in the financial expense ratio.
Analytical judgment:
The worsted spinning and finishing business drives revenue growth. We analyzed 1) Benefiting from the increase in wool and worsted business orders, we estimate that overall business orders will also increase 2) 23/4/13 The holding subsidiary, which holds 70% of the shares, plans to buy cashmere spinning assets related to Zhejiang and Macao enterprises and Bank of China Textiles for 595 million yuan, including housing buildings, machinery and equipment, land use rights, etc., and is expected to increase depreciation by 15 million yuan (40 years) per year according to the acquisition amount. We estimate that the acquisition will increase the fixed costs of the cashmere business, and the profitability of the cashmere business will decline.
The decline in net interest to mother was mainly due to an increase in the financial expense ratio. 24Q1 gross margin was 19.91%, up 0.64PCT year on year. 24Q1 company's net profit margin to mother was 8.7%, down 0.48 PCT year on year. In terms of expense ratios, sales/management/ R&D/ finance expense ratios were 1.72%/3.06%/2.35%/1.32%, year-on-year increase of -0.03/-0.06/0.09/1.31PCT; other income/revenue increased 0.11PCT; asset and credit impairment loss/revenue increased 0.03 PCT year over year; fair value change/revenue increased 0.06PCT, and income tax share decreased 0.07PCT.
Inventory decreased. The 24Q1 company's inventory was 1.87 billion yuan, a year-on-year decrease of 1.5%. The number of inventory turnover days was 190 days, an increase of 18 days over the previous year. The company's accounts receivable were 610 million yuan, up 14.1% year on year, and the number of accounts receivable turnover days was 42 days, up 0 days year on year. The company's accounts payable was 298 million yuan, a year-on-year decrease of 28.2%. The number of payable turnover days was 44 days, an increase of 2 days over the previous year.
Investment advice
According to our analysis, (1) According to the company's announcement, the new production capacity this year mainly comes from 15,000 spindles of wool worsted yarn in the second phase (which is expected to be put into operation in the middle of the year), and the first phase of 20,000 spindles of the subsidiary “50,000 spindles of high-grade worsted textile textile dyeing and finishing project” is expected to be completed and put into operation one after another from the end of this year; in addition, the company announced the establishment of a new subsidiary in Ningxia on March 15. We determine that it is still expected that the production capacity of worsted yarn will be expanded in the future. (2) The price of combed wool yarn imported from China fell 14% year on year in '23, and has stabilized at the bottom since November '23. We expect profits to improve in the second half of the year; (3) cashmere capacity utilization continues to improve, but there is still room for improvement in quality and efficiency, so there is still room for improvement in gross margin driven by structural adjustment; (4) In the long run, the company will continue to implement a broadband strategy, expand the yarn category horizontally, and on the other hand, expand customers to sports, textiles, industrial textiles, etc. It is ahead of its rivals in terms of quick response capability and equipment level. It has significant cost advantages, and it is expected that it will continue to seize share in the future. Maintain the 24/25/26 revenue forecast of 51.1/580/6.57 billion yuan; maintain the 24/25/26 net profit forecast of 4.77/5.41/656 million yuan, corresponding to the 24/25/26 EPS forecast of 0.65/0.74/0.90 yuan. The closing price of 7.46 yuan on April 23, 2024 corresponds to PE 11/10/8 times, respectively, and maintains a “buy” rating.
Risk warning
Risk that wool profit recovery falls short of expectations, risk of cashmere gross margin increase falling short of expectations, risk of fluctuating raw material prices, and systemic risk.