Revenue remained flat in the first quarter, with significant improvements in gross margin and expense ratios, but non-recurring profit and loss dragged down net profit due to mother.
The company is a global leader in the manufacture of yarn-dyed fabrics, and its main products are woven fabrics and shirts. As overseas brand inventory removal came to an end and orders gradually improved, the company's revenue increased 0.3% year on year in the first quarter of 2024, reversing the downward trend. Driven by increased capacity utilization and the company's strengthened cost control, gross margin increased 2.8 percentage points to 23.5% year on year. At the same time, due to the company's strengthened cost control and reduction in exchange losses, the cost rate for the period decreased by 3 percentage points year on year. However, in the first quarter, the company's net loss from changes in fair value was 72.94 million yuan, accounting for 5.3% of revenue, and the net return on investment ratio fell 1.1 percentage points to 1.7%.
As a result, the company's net profit to mother fell 29% to 68 million yuan, and net interest rate to mother fell 2 percentage points to 4.9%. Excluding the impact of non-recurring profit and loss, non-net profit in the first quarter increased 139% to 120 million yuan, and deducted non-net interest rate increased 5.1 percentage points to 8.9%.
Inventory amounts declined slightly year on year, and operating indicators were generally positive. The company's inventory turnover increased slightly by 3 days to 178 days, and the inventory amount decreased by 3.5% year-on-year to 2.05 billion yuan. The company's net operating cash flow in the first quarter was 90 million yuan, with a net present ratio greater than 1, while capital expenditure decreased.
Capacity utilization will pick up in 2024, profit recovery is expected to be flexible, and medium- to long-term growth is expected to grow steadily.
In 2024, as orders recovered from the bottom, the company's capacity utilization rate continued to improve. It is expected that profit levels will continue to recover, and the annual performance will be more flexible. Looking at the medium to long term, the company's production capacity of 35 million meters of functional fabrics and 30 million meters of high-grade yarn-dyed fabrics is in the process of being reserved, and is expected to maintain steady growth in the future.
Risk warning: brands continue to remove inventory; repeated epidemics; raw material prices fluctuate greatly; exchange rates fluctuate greatly.
Investment advice: Focus on opportunities to rebound from the bottom of 2024 results. Brand inventory removal in 2023 affected the company's performance. The company's non-net interest rate deduction was clearly recovered in the first quarter of 2024. It is expected that this trend will continue throughout 2024, and the performance will have great potential for recovery. In the medium to long term, capacity expansion and efficiency improvements drive steady growth. As the company's losses from changes in fair value in the first quarter exceeded expectations and the profit forecast was lowered, the company's net profit for 2024-2026 is expected to be 6.1/7.2/780 million yuan (originally 6.4/7.4/8.1 billion yuan), respectively, an increase of 51%/18%/9% over the previous year. Considering that the reduction in profit forecasts is mainly affected by changes in fair value, in fact, after deducting non-net profit, the expected performance is still strong, maintaining a target price of 7.0-7.8 yuan, corresponding to 2024 PE 9.5-10.5x, and maintaining a “buy” rating.